L&G backs UK affordable housing delivery in £100m debt deal

Legal & General Investment Management’s real assets division has provided £100 million (€111.6 million) of long-term finance to UK housing association Bromford Housing Group, in a deal that demonstrates institutional debt providers’ appetite for UK affordable housing.

The finance was provided for 40 years by way of a deferred private placement. LGIM invested on behalf of clients including the group’s Legal & General Retirement Institutional business.

“Social and affordable housing is a good asset for our pension funds,” Steve Bolton, LGIM’s head of private corporate debt for Europe, told Real Estate Capital. “It is long-term and delivers real social value.”

According to a December 2019 report by consultancy Savills, the affordable housing sector features similar characteristics to other residential sub-sectors to which investors have been drawn. These characteristics include liability-matching returns, growth potential and insulation from volatility. The sector also offers opportunities for long-term social impact investment, the consultancy said.

LGIM cited the UK’s shortage of social housing, with 1.3 million households on local authority waiting lists.

Bolton added: “Investors have shown that they view housing as a defensive sector that continues to be fundamentally attractive despite the current crisis. Covid-19 has and likely will change our lives in a number of ways, but what has not changed is the UK’s need for more quality homes.”

After completing more than 1,000 new homes in the past 12 months, the latest funding will support Bromford’s goal of delivering another 12,000 by 2028. The group has now re-opened development sites following lockdowns.

The 40-year financing is Bromford’s longest-dated bond so far, according to the group’s head of treasury, Imran Mubeen. The deferred funding structure means it will not be drawn down until May 2021, thus allowing the financing requirement to be spread over a broad time horizon.

“The deferred nature of the deal allows us to lock in the historically low rates that we are seeing in today’s market,” Mubeen told Real Estate Capital. “We entered covid with very strong levels of cashflow and liquidity, so we didn’t have an immediate requirement for additional cash at this stage.”

Bolton said the loan was provided at a “competitive” credit spread that reflected Bromford’s sector-leading credit ratings.

“Delivering more of these homes helps to meet demand and reduce waiting lists for those to whom the private market is inaccessible,” said Mubeen. “This is going to become particularly important in our communities over the coming years, as we start to recover from covid-19.”

Bolton added: “While covid-19 meant there was a marked pause in funding activity in late March, housing was one of the sectors that came back first.”

This was a demonstrated by several public bond issuances, Bolton said. For example, Home Group, one of the UK’s largest housing associations, announced in May that it had secured a £100 million bond issue at a record low interest rate

Mubeen said that the sharp increase across the UK in applications for the government’s Universal Credit welfare payments scheme could lead to increased demand for affordable and social housing.