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Councils ask for housing discounts following PWLB rate rise
Councils have asked the Treasury to offer discounts on public borrowing rates for housing after interest levels were hiked last week.
The government told local authorities last Wednesday that it is increasing the cost of new borrowing from the Public Works Loan Board (PWLB) by 1% with immediate effect, bringing the rate to 1.8% over gilts, which sit at around 1%.
The move has led to concerns in local authorities across the country that the increase could threaten planned housing and regeneration schemes.
Town halls across the country have been putting in place huge borrowing programmes to build new homes after the government abolished the Housing Revenue Account (HRA) debt cap in October last year.
The Local Government Association warned the increase could see council housebuilding projects cancelled, while Southwark Council has said it will add up to £9m a year to debt servicing costs associated with its new homes programme.
Credit rating agency Moody’s said the rate hike will be “credit negative” for councils as they face higher interest costs when borrowing for new housing and other infrastructure projects.
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Simone Hines, executive director of resources at Nuneaton and Bedworth Council and president of the Society of District Council Treasurers, told Inside Housing: “There was a conference call last week with Treasury and [the Ministry of Housing, Communities and Local Government] to discuss the PWLB announcement.
“We raised the impact that this may have on capital schemes, particularly housing and regeneration schemes, that may already be close on viability.
“We have suggested that a lower rate could be offered for these types of schemes, similar to the Local Infrastructure Rate.
“We will be pulling together evidence of schemes that may not proceed as a result of this to support our case.”
Councils are eligible to apply for a discounted PWLB borrowing rate of 60 basis points above gilts to build non-housing infrastructure in their areas.
London Councils warned that the rise “will have a severe impact on the viability of much-needed housing and regeneration schemes currently under development in London”.
It added: “We urge the government to consider developing a more sophisticated approach that would continue to ensure access to funding for high-priority developments and to address the revenue costs through next year’s Spending Review.”
Meanwhile, finance experts said the higher interest rate could see councils turn to the private sector for borrowing.
David Blake, strategic director at treasury advisor Arlingclose, said: “Our view is that funding for local authorities at this rate is very expensive.
“For the private sector, it’s very attractive to invest in as the credit quality is supreme.
“We’ve already had a number of conversations with funders saying, ‘this is an interesting development, we’ve got a pile of cash to invest and can we get involved in this’.”
Ken Lee, chair of the housing panel at the Chartered Institute of Public Finance and Accountancy: “While authorities will consider borrowing from the private sector as a legitimate alternative, they should be aware of the additional covenants that may apply.”
