£30m Acton Housing deal hailed as first of its kind

Acton Housing association has agreed a £30m loan from Allied Irish Bank on the promise that all its future grants from the Housing Corporation will be given directly to the bank until its debt is repaid.

The association, a subsidiary of Dominion Housing Group, has hailed the deal as the first of its kind.

It said the structure could be a way forward for registered social landlords facing a severe shortage of working capital to develop projects. This has become a common problem since the Housing Corporation abolished its practice of funding 40% of schemes at land acquisition stage, in favour of paying half at the start on site and half on completion.

Derek Joseph, a director of consultant Tribal HCH, who advised Dominion on the loan, said the agreement was ideal for RSLs that did not have enough existing property to secure new loans and could not afford to pay higher interest rates for unsecured loans.

Under the deal, if the Housing Corporation grant falls through, the loan can be repaid from a third-party trust that holds the deeds of most of the association’s 10,000 units.

Once lenders with existing loans secured on property have been paid, any surplus stock from the trust will go to the bank.

Joseph said this “second line of defence” effectively made the loan a “halfway house” between a secured and unsecured loan with the interest payment 0.33% to 0.5% lower than if the loan was unsecured.

He added that most of the larger RSLs were considering using this financial model, particularly because they pay a lower rate of tax on these loans as they do not count as a loan secured on property.

A Dominion spokesman said: “The association’s existing facilities require security in the form of completed properties in management and although it continues to charge as many properties as possible, it also recognised that it needed a working capital facility to supplement this effort.”

Dean Tufts, finance and resources director at Dominion, added: “It is simple and cost-effective to set up and administer, as well as offering lending at below the interest-rate margins normally offered for unsecured borrowing.”