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Institutional investment in affordable housing – when bank lending is no longer sufficient

20/08/2012 14:07

The housing sector stands on the cusp of a severe funding gap. Where banks once accounted for 89% of funding for this crucial sector, an economic crisis means that they are no longer keen to provide loans to housing providers. Instead, they have cut lending periods, raised the cost of loans and are considering limiting their loan books altogether.

It follows, then, that alternative sources of financing are needed for housing associations to give their projects a much-needed kick-start. Indeed, research carried out by accountancy and business advisory firm BDO LLP has found that around 70% of UK housing providers are now seeking alternative funding methods in 2012 to help boost their development programmes and meet the ever-increasing housing need.

Institutional investment as the way forward

One alternative funding method that presents itself to the housing sector is investment from large institutions, including pension funds and insurance companies, which possess the resources available to help deliver new housing projects on a large scale where banks are reluctant to do so.

As institutional investors are increasingly looking into property lending, we at Carlton & Co have made it our mission to unlock this opportunity for them to deliver the long-term funding that housing providers require.

Why institutional investment provides the solution 

The affordable housing sector has become a popular investment opportunity for large institutions due to various reasons. BDO has found that housing association bonds are particularly popular with large UK institutions as these can cover their long-term liabilities. In addition to this, the attraction of institutional investment into the housing sector has also resulted from:

  • The sector’s government backing;
  • The fact that it provides an inflation-linked income stream;
  • The long-term nature of investment (30 years) which is exactly what housing associations are looking for, due to the banks’ reluctance to lend long-term. (Banks now tend to cap their lending periods to 10 years or under.)

Imagination, innovation, investment

We at Carlton & Co are completely in agreement with BDO when it says that there is a need for “imagination and financial innovation” to ensure that affordable housing providers can deliver a housing supply with minimal risk to everyone involved. A dynamic marketplace demands an innovative approach, and this is exactly what we are working towards with a number of forward thinking partners.

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