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Four landlords pay off their shares in £192m bond early due to rising interest rates
Four landlords have taken the opportunity to pay off their shares of an outstanding £192m loan early due to rising interest rates.
In a stock market update, Housing Association Funding, which originally issued the multimillion-pound bond in 1997, told bond holders that the four landlords have paid their existing balances ahead of the original due date of June 2027.
Inside Housing understands that the interest rate on the loan was fixed, payable through to the end of the loan in 2027.
This fixed rate is now closer to the current market rate than it has been for many years.
This means the amount that needs to be paid to exit the loan, the difference between these two rates, is now smaller and therefore more favourable, offering landlords the chance to reduce their future interest burdens.
The outstanding balances total more than £29m and will be paid off on the next combined payment date of 5 December.
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Derwent Housing Association will pay off around £3.9m, Home Group will pay £5.7m, followed by Stonewater with the largest outstanding balance of £12.7m. Metropolitan Thames Valley Housing (MTVH) will pay off £6.9m.
A spokesperson from MTVH said: “Borrowing is a necessity for housing associations to carry out our mission, specifically the development of new affordable homes. We are committed to securing the best possible loan terms so that we can maximise value to the people we provide homes for.
“We entered into this loan in 1997, and some of its terms are now out of step with comparable new borrowings. The recent changes in interest rates presented the opportunity to exit the loan on favourable terms compared to recent years. Therefore, it made sense to give notice for early repayment.”
Isabelle Kirk, assistant director – treasury at Stonewater, said: “We regularly review our borrowing to maximise value [and] we were in agreement with the other remaining lenders that it was the right time to consolidate this historic loan, when the burden of admin fees fell to a smaller cohort of lenders.”
Steve Hallowell, director of treasury and investor relations at Home Group, said: “This is a legacy loan which presents a number of operational challenges, including relatively high administration costs, with a reducing number of borrowers, and inefficiency in terms of properties charged as security.
“Recent changes in interest rates have provided us with an opportunity to repay this loan on acceptable terms, which reduces our interest burden in future periods and removes the risk of escalating administration costs as other borrowers repay.”
Mr Hallowell said that modernising the landlord’s loan book and increasing its financial resilience through lower loan interest and administration costs will provide benefits in the years to come.
Derwent did not respond to a request for comment.
The recent market turmoil also led to an increase in gilt yields, which is likely to have led to an improved funding position in the Social Housing Pension Scheme.
An analysis by pension advisor LCP explained that although the recent turmoil in financial markets has been unwelcome for some in the short term, the resulting financial conditions may well be positive for housing associations’ pension schemes.
