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Banks on lookout to bail out of low rate housing deals

PUBLISHED: 22:53 23 October 2008 | UPDATED: 13:43 05 October 2010

A CASH crisis is looming for some of Britain's 1,500 housing associations after it emerged that banks are trying to renegotiate loans in the wake of the credit crunch. An email sent by the National Housing Federation warns housing bosses it has received "intelligence" that bankers looking to bail out of low rate deals and they should comply with every letter of loan covenants to avoid banks claiming even the smallest breaches

EXCLUSIVE By Ted Jeory

A CASH crisis is looming for some of Britain’s 1,500 housing associations after it emerged that banks are trying to renegotiate loans in the wake of the credit crunch.

An email seen by the East London Advertiser sent by the National Housing Federation—the trade body for registered social landlords—warns housing association bosses it has received “intelligence” that bankers are on the lookout to bail out of low rate deals.

Housing chief executives have been told to comply with every letter of loan covenants to avoid banks claiming even the smallest breaches.

The confidential email has added to worries in the sector with many social landlords already believed to be over-exposed to the downturn in the property market.

One senior housing association source in Tower Hamlets believed the East End would escape largely unscathed, but was sure of shockwaves elsewhere, he told the Advertiser.

Several associations—particularly those which have not benefited from rents, grants and service charges inherited from local authority Housing Choice’ stock transfer programmes, based their business plans on sales revenues from new developments.

With those income streams drying up, there is concern among industry insiders that some of the not-for-profit’ companies could be in trouble.

The Housing Corporation, the Government regulator, forced the sale earlier this year of the Ujima association, responsible for 4,000 Londoners, after it collapsed following over-ambitious expansion plans.

It was the first registered social landlord to fail. At the time, the Council of Mortgage Lenders warned that banks would be getting tougher in the sector.

According to the National Housing Federation email, it has stayed true to its word.

LOOKING FOR REASONS

The email says: “The liquidity problem in the lending market has resulted in lenders having an opportunity to review the terms of their loan agreements and associated fee levels.

“The liquidity problem continues unabated with the main lenders to the housing association sector having to rebuild their balance sheets.

“The banks are also exerting much more control over the draw down of funds and there is evidence to suggest that they are requesting housing associations to not draw down funds unless they are absolutely essential.

“At a time when loan conditions are under increasing scrutiny by the banks, housing associations must be careful to comply with all covenants for existing facilities.

“The Federation has received intelligence that lenders are looking for reasons to renegotiate existing deals and that a technical breach of a loan agreement could result in less favourable terms for the housing association.”

The Housing Corporation confirmed that lenders “are now taking a much tougher line in their dealings with the sector.”

Their spokeswoman said: “There is some evidence that where formal approval is required from lenders for any changes (in loans), funders are likely to re-negotiate conditions relating to existing facilities.”

Among the East End housing associations contacted by the Advertiser, Gateway, Circle Anglia—which owns Old Ford housing association—Tower Hamlets Community Housing, East End Homes, Poplar Harca, Swan and Genesis all insisted their business plans were robust and not dependent on property sales.

Meanwhile, although regulators admit that some associations nationwide have deposits with the troubled Icelandic banks, none are believed to be operating in Tower Hamlets.

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