23/10/2024
Contents
- Land Registry Fee
- Capital Markets Update
- Themes and overview of recent housing conferences
- Commonhold
- Should RPs embrace Stock Swaps?
- Issues for Charging relating to Planning Permissions
- Warm Homes: Social Housing Fund, Wave 3
Welcome to our latest Housing Finance snapshot - where we explore the evolving financial landscape and recent developments in our sector. As we await the upcoming government budget this October, there are promising signals regarding more collaboration between government and the sector. There appears to be an understanding from this government of what the sector needs in order to support its target of building 1.5million new homes.
There is potential for the sudden reduction in inflation announced this week to have a mixed impact on the sector – potentially assisting with a drop in interest rates and reduction in costs for associations but also reducing any inflationary rent rises along with it.
The Sector Risk profile issued by the Regulator of Social Housing on 17 October 2024 highlights, “that viability risks have intensified over the last year, and social landlords are facing significant and competing pressures to deliver both more and better social homes against a backdrop of higher borrowing costs.
Though the sector remains resilient overall, many landlords have less capacity to deal with new challenges. This requires more active management from boards, with less margin for error in decision making.”
However, the substantial infrastructure funding promised earlier this week, the establishing of UKInfrastructure Bank as the National Wealth Fund and the announcement week of its £1bn deal with Barclays and Lloyds and a further £150m with The Housing Finance Corporation to fund retrofit for the sector, is a promising start to demonstrate government investment into the UK housing space.
While challenges in the sector persist, our participation in various housing conferences over the past month has highlighted a collective commitment among individuals and organisations to seek innovative funding solutions. It is clear that while there may not be a singular fix, a united effort between the government and the housing sector can foster resilience and pave the way for funding the future of social housing.
Bevan Brittan is a market leader in the delivery of legal services to the housing sector. We are ranked in the top tiers for social housing by both Chambers UK and The Legal 500.
The housing finance team have recently expanded further with leading banking portfolio and charging lawyers joining the team – including Katie Dyer, Anna Clark, Yvonne Mao, Rebecca Gibson and Gemini Cecil in the last 9 months. We are now recognised in Legal 500 as one of the top 5 UK law firms for Social Housing Finance.
We have one of the largest Housing Finance teams in the UK with a deep sector focus in housing and the wider public sector, meaning our clients benefit from our in-depth insight into current and emerging trends, opportunities and challenges. We work for a variety of registered providers of all sizes, including most G15 RPs, for-profit registered providers, banks, security trustees, investors and other key stakeholders in the sector such as local authorities and care providers.
Let’s take a closer look at the latest updates and insights shaping our industry.
Land Registry Fee increases coming into effect December 2024 – cost implications for Housing Associations
The Land Registry acts as the focal point for any and all property due diligence where registered title documentation such as title registers, title plans, and referred to title documents are stored and accessible to the public. It is also utilised for a number of searches including local land charge searches, bankruptcy searches and priority searches, all available for a fixed fee.
Whilst it has been a rarity for such services to be subject to cost review, for the first time in more than 10 years the Land Registry will be increasing their fees by £4 per service/document across the board. The result will be the cost of routine searches and requests for documents now being priced at more than double their current cost in most cases. Whilst the effect may seem bearable on individual requests for such services, users carrying out large portfolio charging, development or acquisition/sale transactions or carrying large scale due diligence for an organisation (such as updating Asset and Liability registers) will be hit by bulk orders for documents and searches being more than twice that from which they are currently priced.
At Bevan Brittan we can order many Land Registry documents in bulk and present the data in our cloud based portal allowing you to download the information easily and assist you in enriching the property data that you hold and speeding up the preparation for due diligence projects.
If you think you will need to access such services soon please get in touch with Katie Dyer and Rubyn Campbell at Bevan Brittan and we can talk through the options available to you to obtain this information ahead of the price increases.
Here are more details of the price increases for reference:
|
Product |
Current Pricing (Digital) |
Current Pricing (Paper) |
New Pricing (Digital) |
New Pricing (Paper) |
|
Title Register |
£3 |
£7 |
£7 |
£11 |
|
Title Plan |
£3 |
£7 |
£7 |
£11 |
|
Filed Documents |
£3 |
£7 |
£7 |
£11 |
|
SIM Search (first 5 titles) |
£4 |
£4 |
£8 |
£8 |
|
SIM Search (Every 10 titles up to 10 titles thereafter) |
£2 |
£2 |
£6 |
£6 |
|
OS1, OS2, OS3 and HR3 Searches |
£3 |
£7 |
£7 |
£11 |
|
PN1 Search |
N/A |
£11 |
N/A |
£15 |
The change follows price increases which took place at the beginning of 2022 which saw the cost of some registration fees also undergo an increase. The Land Registry have commented that “The increase reflects the increased costs of running and improving HM Land Registry’s services, as well as plans to increase digitalisation and transformation of data. However, even with this increase, the majority of customers will still be paying less than they were in 1992,” and that they are continuing with a wider review to determine whether all fees are aligned to their strategic plans and how they can be made less complex and fair for customers while enabling better access to their data.
The change comes into effect from 9th December 2024. Any businesses planning to carry out large property due diligence projects involving Land Registry should consider accessing the services they may require before that date. Businesses need to be prepared for the costs implications these increases will bring about moving forward.
Further details on the fee increases can be found at: Changes to fees for HM Land Registry’s information services.
Capital Markets Update
After an increase in capital markets activity earlier in the year, with Paradigm Housing Group issuing a £250m sustainability bond in March 2024, shortly followed by Platform Housing Group (supported by the Bevan Brittan Housing Finance Team) issuing a £250m sustainability bond in April 2024, we then saw a gap before a return to the markets by Southern Housing in October 2024, we have seen a slowdown in recent activity with gilt rates remaining high. We are however seeing clients maintaining their readiness to go to market at short notice to take advantage of windows of opportunity, through strategic charging exercises and updates to their EMTN programmes.
We have also seen the introduction of a new set of listing rules from the Financial Conduct Authority which took effect on 29 July 2024 and which extend some of the listing principles which previously only applied to equity shares such that they now apply to bonds listed on the main market of the London Stock Exchange.
The listing principles that apply to a listed company (including a Registered Provider that has issued bonds) are as follows:
- Take reasonable steps to establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations.
- Deal with the FCA in an open and cooperative manner.
- Take reasonable steps to enable its directors to understand their responsibilities and obligations as directors.
- Act with integrity towards the holders and potential holders of its listed securities.
- Ensure that it treats all holders of the same class of its listed securities that are in the same position equally in respect of the rights attaching to those listed securities.
- Communicate information to holders and potential holders of its listed securities in such a way as to avoid the creation or continuation of a false market in those listed securities.
The last four principles apply to debt issuers for the first time. Although the new principles do not contain anything which should be difficult to adhere to (arguably issuers should already be adhering to these principles in practice), finance directors who have main market listings or who may contemplate such listings in the future should be aware of the new listing rules.
Themes and overview of recent housing conferences
National Housing Federation’s Treasury conference 10 October 2024
The Bevan Brittan Housing Finance team were out in force at the NHF Treasury conference, including Louise Leaver speaking on a panel about equity investment. A range of critical topics surrounding the future of funding social housing were addressed, offering insights from various panel discussions.
Economic Future Under the new Labour government - Experts examined the economic outlook for housing under the new government, expressing concerns over lower GDP growth and inflation impacting spending power, alongside a projected £20 billion budget overspend. While improvements in household balances and declining mortgage rates were noted, weak consumer spending persists. The Labour Party aims to rebuild trust with the housing sector through a long-term strategy focused on social housing and collaboration with the sector and local authorities to address issues such as the reported 635,000 empty homes in the UK. Comprehensive policy interventions, such as a planning review are deemed essential for stabilising the housing market and improving affordability but there was no one silver bullet that would solve funding housing and it would require various initiatives which should be considered holistically.
Social Housing and Government Policy - Another panel emphasised the need to position social housing at the heart of UK government policy and infrastructure. Current housing delivery has significantly declined, averaging 40-50,000 homes annually compared to the 70,000 in the late 1990s. Challenges such as rising repair costs, high interest rates, and rent caps are squeezing financial margins. Panellists called for increased equity funding and potentially a region-specific collaborative approach to align housing with local needs, highlighting the necessity of robust funding models that protect residents and social housing assets.
Credit Ratings and Investor Confidence - A discussion on the future credit ratings for social housing providers revealed that 64% of respondents at the conference anticipate credit ratings for the future to land around BBB. While some providers may experience slippage, experts from S&P and Canada Life emphasised the importance of understanding the underlying narratives behind these ratings. The experience of Riverside highlighted the risks associated with a rescue, dealing with high-rise and regeneration efforts. Panellists urged providers to demonstrate a clear trajectory and sustainable development ambitions to improve their ratings amidst ongoing interest and inflationary pressures. It was highlighted that it can take a number of years for credit ratings to go back up and the work needed to improve a credit rating should not be underestimated.
Innovative Funding Strategies - The need for innovative treasury products beyond traditional debt financing was a focal point of discussion, with a projected shortfall of 95,000 homes if new mechanisms are not established. Panellists highlighted the importance of engaging residents in energy-saving initiatives and explored various funding options, including government-backed loans. They stressed the need for collaboration across sectors, particularly with energy markets, to enhance asset valuations and create viable revenue streams through retrofitting and other innovative approaches. It was clear that a key aspect of supporting development would be some form of government intervention either through grant or exploring ways to utilise other financial support from the government such as expanding the building safety fund to housing providers and reviewing how housing benefit is treated.
Engagement with Residents and Stakeholders - Experts discussed how housing associations can effectively engage with residents, funders, and ratings agencies to prioritise customer needs and tell the Association’s story to its funders and rating agencies about the resident experience. Clear communication with residents regarding rent, service charges, maintenance and other key initiatives that could impact residents is needed. This helps to foster trust and encourages resident participation in decision-making. Although ratings agencies such as Moody's have not historically included resident feedback in evaluations, there is growing recognition of their importance. The integration of ESG factors into credit analysis is becoming crucial, and with more data on tenant satisfaction becoming available – especially as a result of the new consumer standard ratings – this requirement is only likely to increase.
Mergers for Growth and Efficiency – Another panel focused on the potential of mergers in the housing sector to drive efficiencies and growth. Participants highlighted the importance of understanding risk profiles and conducting thorough due diligence. While mergers could strengthen entities, concerns about the impact on weaker parties were raised. The conversation included discussions on repricing legacy debt and when this would be a possibility as well as the complexities of liquidity management, underscoring the need for careful planning and cultural alignment for successful merger integration.
Equity and housing – Louise Leaver was part of a panel with Catherine Raynsford (Hyde Housing Association), Jonathan Clarke (Savills Investment Management) and Henrietta Podd (Alia C&C) discussing the role of equity funding and whether it is possible to balance profit for equity investors with delivery for existing and future tenants. The panel considered the types of equity investments, nature of investors and how to manage competing priorities and risks. Overall positive encouragement to explore options.
Housing finance takeaways from the first Housing Summit – September 2024
Bevan Brittan colleagues attended the first Housing Summit in Liverpool in early autumn. The conference covered a wide range of governance, policy and expert insights from a variety of speakers. Here are some key takeaways for housing finance professionals:
Political landscape - Housing Minister Matthew Pennycook underlined the urgent need to address the failure to build sufficient homes, committing to reforms in the planning system to reverse previous anti-supply measures. The government aims to deliver 1.5 million homes, with a focus on mandatory planning targets, brownfield development, and increasing affordable housing to 50%. Discussions also highlighted the significance of multi-party politics and the challenges of engaging local governments while addressing changing household demands and immigration. Experts noted the economic risks tied to promised reforms and the need for significant investment in affordable housing, along with a cultural shift in how the government approaches housing and planning. The conversation concluded with concerns about the financial viability of housing sites and the necessity of expanding the Affordable Housing Programme budget.
Financial viability of the sector - industry leaders including Jonathan Walters from the Regulator of Social Housing and Noa Fux from S&P Global Ratings discussed the financial viability of the housing sector. They noted that while stock rationalisation could address financial pressures, it advised against selling assets without a clear strategy. Although rising interest rates pose challenges, investors remain interested in lending, and certain regions like the South West and East of England are showing resilience although some RPs – especially those exposed to more urban markets, including London, often faced greater financial challenges.
The panel emphasised the need for effective governance and communication, highlighting that boards must balance tenant safety with the development of new homes and maintenance of existing stock. Strategic investment is crucial, with a focus on understanding stock conditions rather than just relying on disposals. Despite high costs and inflation, opportunities for funding remain through debt and equity, especially for associations that implement cost efficiencies. The summit concluded that collaboration and energy efficiency investments will be key to navigating current challenges and ensuring long-term success in the sector.
Investment options for the sector – panel discussions on investment options highlighted the growing financial support for the housing sector, with significant funding from banks and pension funds. Key players, including Peabody and THFC, emphasised exploring alternative funding models and the importance of reducing upfront capital through public-private partnerships. The need for regulatory oversight and innovative financing strategies, particularly for retrofitting and social housing, was also highlighted to attract investment and manage risk effectively.
Long term rent settlement – at the panel session on long-term rent settlements, experts highlighted the need for rents to meet regular standards while addressing rising costs from inflation and decarbonisation. There was debate over the CPI + 1% rent formula, questioning its effectiveness given financial pressures and outdated valuation models from 1998. Concerns were raised about the political uncertainties surrounding rent regulations and the adequacy of affordable rents, which often misallocate benefits. The conversation also pointed to the necessity of addressing building safety and environmental costs in rent structures, emphasising that different regions face unique challenges. Overall, there was a call for a more adaptable and supportive approach to ensure affordability and sustainability in housing.
Devolution – speakers at the session on whether devolution was part of the housing solution emphasised the need for local control and collaboration to address housing challenges. Liverpool’s mayor highlighted the absence of council housing and proposed the establishment of a new Housing Revenue Account to facilitate large-scale development. West Yorkshire’s Mayor is fostering partnerships to meet affordable housing targets, while the Greater Manchester area showcases successful local initiatives like the Housing First program. The conversation underscored the importance of recognising housing investment as infrastructure and enhancing planning powers for combined authorities to drive strategic development effectively.
Partnerships - Peter Denton discussed the need for a local vision in housing strategies, such as Manchester's plan to deliver 10,000 homes. He highlighted the importance of governance structures and effective delivery mechanisms, citing challenges like the contamination of sites as reasons for delays for delivery of projects. Lloyds’ new social housing initiative aims to unlock funding through local pilots, while a recent joint venture with Homes England and Berkeley seeks innovative development solutions. The conversation highlighted the critical role of infrastructure and mixed tenure developments in attracting investment and meeting local housing needs effectively.
Planning – in this panel, professionals highlighted the renewed focus on using planning as a driver for economic growth and housing delivery, with plans to recruit 300 additional planners for local governments. They acknowledged challenges, including the restrictive nature of planning as a power, and emphasised the need for proactive measures to instil investor confidence. While some advocates called for urban extensions over new towns, there was consensus on the importance of upfront infrastructure investment. Discussions also covered the declining interest in S106 agreements for affordable housing, suggesting a need for greater flexibility in these arrangements. The group stressed the urgency for efficient planning processes, digital updates to local plans, and the necessity of adapting to market conditions to effectively support diverse housing needs.
Future Outlook
Despite the pressures, the sector remains resilient. The insights from the summit underscored the importance of collaboration, energy efficiency investments, and effective asset management to navigate the current financial landscape and position the sector for future success.
By Katie Dyer
Commonhold
Those of us who have been in the housing sector for a few years may remember the recommendations made by the Law Commission in 2002, which caused a flurry of interest but did not have the effect of commonhold being a regularly used tenure. Fast forward to the King’s Speech in July 2024 the new Labour government outlined their proposals for commonhold with an aim to end the “feudal” leasehold system which has been criticised for high service charges and barriers to extending leases. The government intends to publish the draft legislation on leasehold and commonhold reform in the 2024-25 parliamentary session.
Commonhold is a form of property ownership in England and Wales that allows individuals to own a freehold flat or unit within a building, while jointly owning and managing the common areas with other unit owners. Commonhold was introduced as an alternative to leasehold to address some of the issues leaseholders face, such as escalating ground rents and limited control over their properties. However, its uptake has been relatively low, which is why recent and future reforms aim to encourage its use.
It is anticipated that the draft Leasehold and Commonhold Reform Bill will:
- enact remaining Law Commission recommendations to strengthen leaseholders’ rights to extend their lease, buy their freehold, and take over management of their building.
- reinvigorate the commonhold tenure by modernising the legal framework. The government intends to consult on options to restrict the sale of new leasehold flats so commonhold becomes the default tenure.
- regulate ground rents for existing leaseholders.
- strengthen the rights of freehold homeowners on private or mixed-tenure residential estates. The government will consult on the best way to achieve this.
- remove the threat of forfeiture as a means of ensuring compliance with a lease agreement.
Commonhold offers a more straightforward and owner-friendly alternative to leasehold, but its success depends on effective management and wider adoption.
Commonhold owners in England and Wales benefit from several legal protections designed to ensure fair management and ownership. These protections aim to create a fair and transparent system for commonhold ownership, giving unit owners more control and security over their properties.
The Commonhold Community Statement (CCS) is the most important document in the commonhold. It forms the rules which govern how the commonhold is used and managed. In a commonhold, the unit-holders must contribute financially to the upkeep of the whole building and must keep to any restrictions and obligations that apply to how they use their unit and the common parts, as set out in the CCS. The prescribed CCS is set out in schedule 3 to the Commonhold Regulations 2004 (SI 2004 no 1829).
Funders and mortgagees will need to fully understand this potential revised tenure and if you plan to create any Commonhold developments or tenures do ensure that your funders are on board and comfortable to lend against this tenure.
We are already seeing loan agreements being amended to take into account the potential Leasehold reform changes. Where any schemes may be converted to commonhold where they are already in charge to a lender- then lender consent to this would be needed. It is most likely that commonhold tenure would be created for new developments rather than converting existing developments. Funders have raised their concerns to the Law Commission around how Commonhold may be revised to protect their interests so we will need to wait to see what protections funders have been given when more detailed legislation comes through.
Look out for our next edition of Housing Matters later this year for more detail.
Should RPs embrace Stock Swaps as part of their active asset management strategy?
At the Housing Community Summit in Liverpool in September both the Regulator of Social Housing (RSH) and Standard & Poors (S&P) mentioned that disposing of stock as a way to raise funds without a sensible and robust strategy behind such programmes shouldn’t be undertaken lightly. The need for registered providers (RPs) to invest in their existing stock to deal with decarbonisation, building safety requirements and eradicating damp and mould problems are well known but the disposal of stock is not seen as a sustainable way to fund these programmes for the long term.
There are varied and numerous very legitimate and sensible reasons for RPs to dispose of stock such as geographical concentrations, disposal of none core assets however, is this now the time when stock swaps become more of an attractive option to RPs? RPs would be divesting themselves of stock that doesn’t meet their strategic plan but acquiring stock that, for example is within their geographical area and/or fits better with their long term growth plans. Stock swaps shouldn’t be undertaken lightly, they can be complicated and time consuming but equally can be effective in enabling two RPs to meet their strategic objectives. The large stock swap between The Guinness Partnership and Paradigm Homes in 2020 shows such transactions can and do work. Finding two portfolios that work for both the buyer and the seller financially, corporately and strategically no doubt takes time and a significant amount of corporate buy in from both organisations, but the collaborative approach amongst those working in the sector, not just RPs, but their advisors and consultants can, and perhaps should, consider swaps as a way to meet long term strategic plans.
Our specialist portfolio transaction lawyers work collaboratively with our clients to drive growth and innovation in order to deliver their strategic plans. We embrace a culture of collaboration and innovation in order to capitalise on advances in technology, data capture and due diligence. If you are considering any type of portfolio transaction please do get in touch with Rebecca Gibson who would be more than happy to talk through your proposals and the process in the first instance.
Issues for Charging relating to Planning Permissions
Whether you are trying to find evidence of discharge of planning conditions, or even just old copies of planning permissions that have come to light on the Local Authority search, trying to find the evidence to satisfy charging requirements on planning can sometimes be a frustrating exercise. But why all the fuss, what is the risk and how can we cut down on any last minute stress?
What is the lender’s concern?
The concern for lenders is that there may be an issue within the planning conditions that could affect the value or marketability of the property, such as a condition that restricts the use of the property for a specific purpose e.g. affordable housing, or a breach of a planning condition or something that has not been carried out, for example remediation of contamination.
To ensure that new developments can be used as loan security as soon as possible following handover, it is important that you are provided with evidence of discharge from the Local Authority of the planning conditions that were required to be performed and approved in writing by the Local Authority either before the development starts and or is occupied. It is particularly important to ensure that evidence of discharge is obtained for any contamination conditions, especially in relation to final completion of an approved remediation scheme.
Older planning permissions
Where a property was built over 10 years ago, the risk to a lender will be less, as the enforcement period is 10 years from the breach of a planning condition. However, a lender will still be concerned that any contamination was dealt with and that there are no ongoing (and therefore enforceable) planning conditions which restrict use and can potentially affect marketability and therefore valuation. This is why there is often requirement to try to obtain copies of planning permissions revealed on the Local Authority searches even though they do not appear to be available on any planning portals and even if the property is over 10 years old.
What can we do to help?
In order to flush out problems at an early stage, we recommend the implementation of a pre-charging or a “rolling charging” programme by Treasury teams ahead of transactional timescale parameters. This approach will allow the time to locate the relevant planning permissions and discharges from the Council or the Developer. As part of the rolling charging exercise we carry out an initial review of the proposed property security which includes carrying out LLC1 searches which will reveal the planning permissions and land charges relevant to the property, some of which can be very old. It is rather frustrating to lose stock value on the basis of a missing planning permission which could date back to the 1970s so allowing more time will reduce this often obscured security risk. Indemnity insurance is not generally available to cover this scenario as the trigger for a pay-out for loss of value is planning enforcement, which is not relevant to a default situation. We can check the planning portals to see which permissions we can obtain for you and then make a plan to deal with any missing permissions and potentially to remove very historic planning permissions from being listed in search results where the Council do not hold a copy – and therefore to maximise the opportunity to secure MV-STT valuation
It is always a bit of a team effort working together to obtain the necessary confirmations and certifications to satisfy the planning elements for a security transaction, but one which benefits from early strategic planning and starting your rolling charging programme early! We would be pleased to speak to you further on any assistance that can be given with rolling charging.
By Jessica Church, Theresa Ferguson and Yvonne Mao
Warm Homes: Social Housing Fund, Wave 3
The Department for Energy Security and Net Zero has announced that Wave 3 of the Warm Homes: Social Housing Fund (previously the Social Housing Decarbonisation Fund) is open for applications and will close at midday on 25 November 2024.
This scheme will unlock vital funding to upgrade significant numbers of social housing stock currently below Energy Performance Certificate band C and support the installation of energy performance measures to deliver warm energy efficient homes, reduce carbon emissions and tackle fuel poverty. The two funding routes under Wave 3 are the Challenge Fund and Strategic Partnerships, while all eligible organisations can apply directly as single applicants or as the lead of a consortium.
Bevan Brittan’s energy team has market leading expertise in the domestic energy retrofit sector and have advised local authorities, regional energy hubs, combined authorities, registered providers and contractors on a range of projects from whole house retrofit to tailored energy efficient solutions. For more information on how we can support you, please get in touch.
By Harriet Murray Jones and Thomas Graham
Targeting EPC C ratings by 2030 – impact on existing secured stock
A key announcement from the Labour party’s conference highlighted plans to extend minimum energy efficiency standards to social housing, mandating that both private and social rental properties achieve an Energy Performance Certificate (EPC) rating of C or higher by 2030. This initiative, aimed at combating fuel poverty and improving living conditions, raises concerns for housing providers with properties that may not meet the new standards without substantial investment. Such requirements could lead to a reduction in available social housing and financial strain due to diminished interest coverage metrics. Additionally, properties that fail to meet these standards may face valuation issues, complicating their marketability and overall financial viability, thus presenting potential challenges for funders and housing providers alike.
Any such changes would have a particular impact where such properties are already in charge and securing existing funding arrangements. There is potential that any statutory changes could impact such properties and so an active asset and security strategy should be in place to mitigate any risks from such a change in legislation. There is a planned consultation on these proposals and the sector will need to respond to highlight any potential issues that this will have on their organisations – especially as it has the potential to reduce funding capacity in the sector. Should you require any advice around this issue please do not hesitate to get in touch with one of our housing finance team.
By Katie Dyer
