Fears Budget pensions shake-up could hit landlord bonds

A radical shake-up of pensions announced in last week’s Budget has sparked fears of a spike in the cost of housing association bond debt.

Life insurance companies saw their shares plunge by £4.4 billion after chancellor George Osborne announced pensioners would be able to draw out their pension pots in a lump sum last Wednesday.

Annuities funds are typically the largest buyers of social housing bonds, and housing association finance directors are warning the current instability in the market could shrink demand and cause prices to rise.

Notting Hill Housing Trust was the most recent landlord to enter the bond market, issuing a £250 million, 40-year bond at a 0.98 per cent spread over gilt, the cost of government borrowing, last month.

Paul Phillips, finance director at the 27,000-home landlord said: ‘The buyers of our last bond were largely annuities, and if they don’t have people buying their products it’s going to make that more difficult.

‘It’s an obvious long-term risk. For the 40-year bond, annuities were much more interested than other investors.’

Piers Williamson, chief executive of The Housing Finance Corporation, which aggregates bonds for landlords, said: ‘In the short term, because annuity funds are the largest single investor in social housing, the question is whether the appetite will still be there.

‘We need to see a couple of deals come through the market to assess what the impact will be.’Bedfordshire Pilgrims Housing Association is expected to issue a bond later this week, which will demonstrate the immediate state of the market following the announcement.

Mark Washer, finance director at 57,000-home Affinity Sutton, said: ‘There is a risk of a short-term impact, as there will be a taking stock in the [annuities] industry following the announcement. In the longer term, the whole pension industry could see a boost, so there could be an upside.’

Kevin Williamson, director of policy at the National Housing Federation, said the change could see pensioners invest directly in retail bonds.

The largest investors in social housing - Legal and General, M&G and Aviva - all saw shares plummet in the aftermath of the Budget. A source at one major investor said there was still ‘a large pot of money available’ and maintained that the likely trend remained increased, rather than decreased, demand for housing bonds.