Housing Finance Snapshot #11 May 2023

Welcome to our May edition of Housing Finance Snapshot - a newsletter providing finance and property security updates and opinion for those based within the affordable housing and local government sectors.

New RICS valuation guidance

Following an independent review of real estate investment valuations, a report was published in December 2021 by Peter J. Pereira Gray. Key themes of the report were improving conflict management and valuer independence and rotation. 

The report included 13 recommendations (all of which have been accepted by RICS) including:

• Creation of a ‘Valuation Compliance Officer’ role who should have the ability to determine whether a valuer can act
• A time specific, mandatory procurement and rotation process for valuers. Including a nine year maximum term for a client (RICS will amend the rotation policy contained in the Global Red Book for the next update).

As a result of the introduction of a mandatory procurement and rotation process some lenders policy requirements are changing to introduce an absolute right to approve the appointment of a valuer and to dictate the number of valuations a valuer can provide once appointed. In some recent cases we have seen rotations required as frequently as every 3 years. Registered Providers are understandably concerned that this approach could conflict directly with their statutory and/or charitable obligations to deliver value for money and we have successfully negotiated a more balanced position for borrowers and lenders.

Bonds Issuance outlook in 2023

Following bumper issuance in the sector in 2021, last year was a difficult year for bond markets. However, many advisers feel that whilst the global economy still faces challenges, the actual financial fundamentals of many issuers (assets and liabilities and profitability) remain strong.  A combination of slowing economic growth, lower goods prices and other factors, means they hope to see inflation ease (albeit more slowly than expected), allowing central banks to slow their pace of interest rate increases, potentially providing a welcome tailwind for bond markets.  We have seen shoots of recovery with a new £350m issuance under the Affordable Homes Guarantee Scheme in March 2023, a new £2bn medium term note programme established by THFC’s new sustainable finance vehicle (see more detail below) and a retained bond sale by Longhurst Group.

Sustainability Linked Loans Principles

The Sustainability-Linked Loan Principles (SLL) were originally launched in 2019. Updated guidance was published in February 2023. The updates include a focus on SLLs being a product that encourage borrowers to begin and/or continue their journey to increased sustainability. There is new guidance around how ‘material KPIs’ should be interpreted, with a recommendation that best practice is for borrowers to undertake a materiality assessment of itself and its industry to identify the most important ESG considerations and help inform the selection of KPIs under a loan. There is also guidance around sustainability performance targets, how to assess whether they are ambitious and suitably meaningful, how to decide on appropriate benchmark references to measure progress against targets and what should be covered (as a minimum) within a verification report.

Inquiry into the financial sustainability of Social Housing in England

Following a report by the Levelling Up Housing and Communities Select Committee published in July 2022, which described the social housing sector as being ‘in crisis’, an inquiry has been launched into the financial sustainability of social housing in England. The report recommended that the government introduce funding specifically for regeneration that does not require the delivery of net additional housing and deliver on its commitment to increase the supply of homes for social rent. It also recommended that that it amend the Affordable Homes Programme to remove the requirement to deliver net additional housing.

The terms of reference of the inquiry span three key areas:

1. the current state of financial resilience of social housing providers
2. “new challenges” to the sector, including maintaining and improving existing stock, and
3. the policy and regulatory challenges to government and the Regulator of Social Housing

The committee is expected to hear evidence sessions in June and is also welcoming written submissions until a closing date of 12 May.

The Land Registry LLC1 digital searches register facilitates security charging search processes

The Land Registry’s new digital service is being hailed as “the most significant change to searches in over 20 years”. The service allows users to search the database for free with official search certificates being provided for a fee of £15.  At present 66 local authorities have migrated their data onto this central register with 99 in the process of migrating across.

The local land charges search is a key requirement for the securitisation process. Ordering searches as quickly as possible at the start of a charging transaction is vital for not only fulfilling this requirement but also provides you with the planning history of the property and allows you to begin the process of satisfying the due diligence for the planning documents (such as signing off conditions and s106 obligations – this is often time consuming). Searches need to be carried out within 6 months of completion of the charge but this new database allows you to search the register for free which will save time and money as you can then do a final check of the register closer to the end of the transaction and order the official search certificate at this stage. This should mean that RPs avoid having to re-order searches or put search insurance in place – this can often be costly and time consuming. The streamlining of searches will be welcomed and the hope is that the 166 local authorities yet to migrate across their data will sign up to the service in due course. 

Security Lists – Our top tips…

It seems quite a simple task in theory – creating your list of properties for a charging transaction. However, often finalising the list of properties takes so much time and more energy than can be imagined if you haven’t carried out a few simple checks at the outset…

Does your list include all the relevant information, title number, property address, Unique Property Reference Number (UPRN) scheme name, date of completion of construction, date it was acquired? It all seems fairly straight forward, but a few simple checks can avoid confusion and delay at a later date:

1. Do you have a list of correct title numbers confirming your ownership for all the properties – are any missing?
2. Have you checked that those property addresses are actually within that title according to the Land Registry? Is there some other property lurking within that title that you weren’t aware of and don’t want to charge or is there some property that is missing from the title that you thought was included? If so, do you want them to be nil value? Is there any infill development contained within a title that has been overlooked?
3. The scheme name and Land Registry Title Number that your development team used may be different from the property addresses and current title details now you have moved onto charging the Property. Having the scheme name within the list is very helpful both at the outset and during the due diligence process
4. Are you actually the registered proprietor? Or is the title still in a previous name of a former entity (the developer or another group member)?  Or has a property not been registered at the Land Registry?
5. The date of completion of construction and the date you acquired the property are often different and it is useful to have both so it is clear when your period of ownership started when its current use commenced and to know how long the property was standing before you purchased it. This is important for ascertaining liability for obligations that the land may be subject to from before you acquired.
6. Does your list make it clear if part of the title is already charged? If part or all of a title is already charged this should be apparent from the outset together with the additional information of who is it charged to. If the Property is the charged via a security trustee then do you know who the units have been allocated to? Do these units have to be released from charge or de-allocated before being re-allocated or re-charged?  Many of the answers will depend on the security transaction, but it is the close analysis of what security is to be used and included in the list that enables you to make informed choices about the issues, potential delays and assessing which of your stock is to be used as part of the security portfolio.

Early identification of any of these points as part of a forward thinking Optimal Charging strategy which prepares security in advance of funding transactions can be productive in minimising transactional delays and costs and result in efficient charging. If you want to speak to us about compiling security ready property lists, please do contact our Security Team. Please contact Jessica Church if you have any queries.

Regulator announces new Value for Money (VfM) metrics and guidance

Housing Associations have for a number of years been required to report on their performance against a set of metrics set down by the Regulator of Social Housing (RSH). In light of soaring costs and inflationary pressures, it is increasingly important for RPs to make the best use of their assets.  The market is seeing lower operating margins and interest cover and consequently access to good asset data to understand what can be achieved with available resources in terms of funding requirements is crucial. The RSH has launched  its “Value for money metrics and reporting 2022” to be used by all RPs to improve the way they report on VfM in order capitalise on their resources to deliver their strategic objectives.

The Housing Finance Corporation (THFC) launches new Sustainable Finance Vehicle

The sector’s leading aggregator, THFC, has recently announced  a new £2 billion debt programme to be made available to RPs via THFC Sustainable Finance (TSF). The new subsidiary will access the markets initially through a European medium term note programme and will focus on sustainability bonds and sustainable use of proceeds bonds to invest in the delivery of new sustainable homes and retrofitting existing stock. The TSF funding will also seek to incorporate key metrics from the Sustainability Reporting Standard for Social Housing and will offer the same competitive terms as THFC’s subsidiary bLEND. 

When we spoke with Arun Poobalasingam and Melissa Gheerawo Skilbeck at THFC regarding the new product. Arun was keen to emphasise the breadth of flexibility TSF would have in accessing new funds to the housing sector utilising THFC’s strong relationships with investors which in turn could potentially improve the terms for borrowers whilst Melissa said that they were keen to make the process as smooth as possible if borrowers wanted to refinance older THFC loans into TSF loans which would benefit from the on-market TSF terms.  Collectively THFC and TSF’s aim is to make funding available for retrofitting as well as the provision of sustainable homes a central part of their loan offering.

New Energy Usage Streamlined Subsidy Scheme

The government has recently announced a new Energy Usage Streamlined Subsidy Scheme under the Subsidy Control Act 2022.  The Scheme provides a route for public subsidies to be given for energy demand reduction projects such as the installation of energy efficiency measures and low carbon heating into buildings and for the development of green heat networks. Bethan Lloyd, Partner within our subsidy control team will be providing an overview of the key terms of the scheme and its benefits as a method for demonstrating compliance with the subsidy control rules and please contact Bethan if you have any queries.

Watch this space – Guide to charging MMC units

Following a presentation provided by Partner Jessica Church, alongside MMC experts Andrew Smith (Savills) and Trina Chakravarti (Building Better) at the NHF Finance conference in Liverpool in March, we are seeking feedback and views from stakeholders in market on securitising MMC units and will shortly be launching a “How To” practical guide outlining the process and requirements for successfully funding MMC units. Many of our clients are acquiring MMC stock and requesting clarity on funding requirements so a new guide is being launched on our website very soon. Please contact Jessica Church if you have any enquiries.

Recent March 2023 deals

We are delighted to have supported our clients in completing the following deals in the last couple of months:

• Our banking and charging teams advised Saltaire Housing Ltd in relation to a £50m loan to Coastline Housing as part of the recent £350m bond issuance under the Affordable Housing Guarantee Scheme.
• We supported Nottingham Community Homes on the restatement of a £70m RCF with NatWest which required additional security to be charged in relation to the increased facility.
• We assisted ForHousing to secure a second tranche of funding in the sum of £30m from bLEND involving a portfolio of approximately 1000 properties.
• We advised the settle Group in relation to the restatement of a £125m RCF with Santander UK Plc
• We advised Havebury Housing Partnership on a restatement of a £75m RCF with Barclays Bank PLC

Say “hello” to the Bevan Brittan Housing team

Conference season is now well underway and our housing practice will be at a number of forthcoming events.  If you are heading to any of these conferences, it would be great to meet with you:

• Social Housing Finance Conference – 10 May, London
• CIH Housing Brighton – 10-11 May, Brighton
• UK REiiF – 16-18 May, London
• NHF Governance Conference – 22 June, London
  Our colleague Sarah Greenhalgh will be presenting at our sponsored session on Planning and preparing the organisation for mergers and partnerships, alongside John McLean from Great Places Housing Group and Sarah Cameron from Peabody.

• CIH Housing 2023 – 27-29 June
  As a sponsor of this event, we will be presenting within two activities:
  • How do we fund decarbonisation costs - Tuesday 27 June, 14.15-15.00
  • Best Practice Collaboration Hub: building safety - Thursday 29 June, 11-12.30pm

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