NHF: loan costs will rise if assemblies award grants

Plans to let regional assemblies award grants to housing associations will force up the cost of borrowing, the National Housing Federation and lenders warned this week.

The assemblies could take over the Housing Corporation’s investment role if they are handed responsibility for regional housing and planning boards. The Regional Assemblies Bill, which would give them this power, will be voted on later this year.

But on Monday, NHF chair Richard Clark wrote to Ed Balls, the chief economic adviser to the Treasury, warning him of the dangers of this move.

He said: “We are concerned that if the corporation’s investment and regulation functions are de-coupled, the cost of borrowing for associations will be affected with the risk that fewer homes are built.”

Clark first questioned Balls on the issue at the Chartered Institute of Housing conference in Harrogate last week.

The Council of Mortgage Lenders is also concerned about the issue and will consult its members over the next 10 days and at one of its regular meetings today.

Lenders feel that investment acts as a regulatory tool so to have two different bodies dealing with regulation and investment weakens the process.

There are also fears that investment could become politicised if handed over to the assemblies and nimbyism could stymie development.

Andrew Heywood, senior policy adviser at the Council of Mortgage Lenders, said: “A consistent set of investment criteria and assessment processes is needed to judge the viability of schemes. Lenders and RSLs operate across regional boundaries.”

And Piers Williamson, chief executive of the Housing Finance Corporation, said: “Lenders take most comfort from regulation – but its success derives from links to investment. Notting Hill got amber lights so its grant was promptly reduced – that’s a major incentive to improve your game. Investment will be more policitised if it becomes a gift from bodies accountable to political assemblies.”

A Treasury spokesman said the government would make proposals this summer and implement them in 2005. He said: “The ODPM is consulting on plans for regional housing strategies and regional housing boards. The NHF can raise its concerns as part of this."