THE region’s four largest housing associations, which have combined debts of around £80million and are struggling to borrow money at affordable rates from banks, will be able to get low interest loans of up to £10million courtesy of Scottish Borders Council.
Under the arrangement agreed last week, the council will be able to borrow from the Public Works Lending Board (PWLB) and “on-lend” the cash to the registered social landlords (RSLs) – Eildon, SBHA, Waverley and Berwickshire which colectively make up the Borders Housing Network (BHN) – for specific new affordable housing projects.
Although the council is not a housing provider, it is responsible for a strategic housing investment plan (SHIP) which sets the RSLs a target of delivering 100 affordable houses each year.
But in a report to councillors last week, corporate finance manager Paddy Fagan admitted: “These targets will be undeliverable without provision of additional assistance by the council.”
The decision, which Mr Fagan conceded carried the risk of default, comes against a background of curbs on affordable bank lending, despite the collateral of bricks and mortar, and a high level of existing indebtedness across the four associations.
Although accounts from individual RSLs for 2010/11 have yet to be posted on the website of the watchdog Scottish Housing Regulator, the net debt of the four RSLs in 2009/10 was recorded as follows: SBHA £26,247million; Waverley £18,245million; Eildon £19,115million; and Berwickshire £16,754million.
In the case of SBHA, the region’s largest landord, its debts actually exceed the price it paid the the council in 2003 for its entire stock of 7,000 homes.
Under that transfer arrangement, the then Scottish Executive agreed to create a clean slate by wiping out the historic debt on the houses.
Mr Fagan explained that Eildon Housing Association was interested in borrowing from the council “as the difficulty in obtaining funding from banks at terms and conditions which are acceptable remains a problem and is likely to do so for the foreseeable future”.
He said that in January, Eildon, following a selection process in partnership with the Scottish Government, was endorsed as the preferred RSL developer for the Borders and would thus develop new affordable housing on behalf of the other network members, viz SBHA, Waverley and Berwickshire, with ownership transferring to the receiving RSL upon completion.
“In addition to Eildon’s interest, in March the council agreed to look at ways of assisting SBHA via the provision of an on-lending facility to reduce the cost of private sector borrowing,” reported Mr Fagan.
“Informally, the other members of the network have approached council staff about an on-lending facility to help alleviate borrowing pressure.”
Mr Fagan said that it was only fair to offer the same on-lending facilities to Waverley and Berwickshire.
Notwithstanding the borrowing difficulties of the associations, Mr Fagan said the Scottish Government had suspended its normal affordable housing investment programme arrangements, reducing the level of grant to around £40,000 per house with no payment to RSLs until completion of the project, thus adding to their financial pressures and risks.
Commending the on-lending provision, Mr Fagan said it would help the council meet its affordable housing objectives and would be “relatively risk free and cost neutral” with SBC charging the RSLs one per cent to cover administration costs.
However, he admitted there was a risk.
“Although security will be taken in the form of housing stock and/or land, if there was a default, the council would still need to address the practicalities of liquidating such assets to return the investment,” he told members.
Certainly SBHA, which has not constructed a single new house since receiving SBC’s stock eight years ago, has plans to build at the notorious Stonefield estate in Hawick.
SBHA chief executive Julia Mulloy confirmed this week that her organisation “planned to replace part of the estate with new homes” once major demolitions and refurbishments of remaining blocks of flats were completed, in a joint £5million venture with Waverley, in 2015.
“It is too early to say if we will be using the on-lending facility agreed by the council last week to facilitate the new builds, but there is no doubt the option of cheaper borrowing is welcomed by all members of the BHN,” she added.