CML news & views

Reports that the government does not intend to move towards paying housing benefit directly to social housing tenants will be welcomed by lenders.

According to a recent report in the Financial Times, the minister responsible for housing benefit, Kitty Ussher, gave a firm re-assurance that housing associations (HAs) and other registered social landlords would continue to have a guaranteed stream of income in the form of benefit paid directly to them.

Following a meeting with the minister earlier this autumn, we wrote to her expressing “very serious concern” about any measures that could disrupt the income stream and therefore jeopardise the contribution lenders make towards funding social housing.

Housing benefit typically provides 60% to 70% of the income of HAs and most of this is received directly by landlords. This guarantees a strong and reliable cash flow, and is cost-effective for landlords. That income is ultimately a source from which HAs repay the funds they have borrowed to build and improve affordable housing.

However, the possibility of paying housing benefit not to landlords but to tenants – who would then use it pay rent to their landlord – emerged as part of a package of measures intended to improve financial capability among tenants and their overall ability to manage money

The reality is, however, that any decision to pay housing benefit directly to tenants would expose the funding of the social housing sector to greater risk. That would have serious implications for HAs, lenders and other investors.

Since the introduction of private finance in 1989, total loan commitments of more than £50 billion have been advanced. One of the attractions for investors in the sector is its relatively low level of risk, an attractive quality as part of an overall investment strategy.

Payment of housing benefit directly to tenants would raise the risk profile significantly, possibly to the extent that investment in the sector would no longer be attractive. 

Such a proposal would be damaging at any time in the market cycle. But in current financial market conditions, the impact would be more pronounced. Market conditions have already caused some institutions to withdraw from the social housing market, although perhaps only temporarily. Those remaining are adopting a more selective approach to lending.

In general, the risk profile of the sector has deteriorated over the past year in any case, partly as a result of increased likelihood of property sales by some landlords, so that they can continue to subsidise the development of social housing given lower government grants.

According to the Financial Times, a survey has revealed that three-quarters of HAs expect to face “significant financial difficulties” as a result of current financial market conditions.

It reported Ms Ussher as saying: “I am deeply concerned, in view of the lack of credit in the wholesale markets, that those who lend to registered social landlords should not have worries that somehow the income of registered social landlords could be threatened.”

That is a reassuring statement that will be welcomed by lenders.