Changes to Housing Benefit announced in the June 2010 Budget - Work and Pensions Committee Contents


Written evidence submitted by Council of Mortgage Lenders

INTRODUCTION

1.   The Council of Mortgage Lenders (CML) welcomes the opportunity to submit written evidence to the Work and Pensions Committee. The CML is the representative trade body for the whole of the residential mortgage lending industry. Our members currently hold over 94% of the assets of the UK mortgage market, and include commercial banks, mortgage banks, building societies and non bank specialist lenders.

2. In addition to lending for owner occupation and private renting, CML members have lent over £60 billion to housing associations (HAs) across the UK for new build, repair and improvement to social housing.

3. This submission has been prepared following consultation with the CML Social Housing Panel of members.

4. The CML on behalf of its members who lend to the social housing sector has previously raised concerns about the impact of changes to the housing benefit system on the availability of private finance to the affordable housing sector.

5. This submission does not focus specifically on the complete list of issues highlighted in the announcement of the Work and Pensions Committee. It seeks to set out why changes to housing benefit are of interest to lenders and investors and the importance of future engagement to identify the consequences on lending at an early stage.

6. We are aware of the need to reform the welfare benefit system. We would ask that the Committee consider the potential risk that reform has the unintended consequence of ending the housing association sector's ability to lever in much needed private finance. Any change to the conditions that have supported and attracted funding for affordable housing has the potential to fundamentally undermine the future prospects for this market. In the context of reduced public investment for housing and an increased need to replace this with private finance this would be extremely damaging to the future provision of new housing for those in need as well as the maintenance of existing homes.

THE AFFORDABLE HOUSING LENDING MARKET

7. During the difficult market and economic conditions of the last few years lending to the housing association sector has fared better in contrast to other property and commercial sectors. Lenders and investors recognise that housing associations are well regulated and the quality of the assets they hold is rated highly. This is evidenced in the continued lending by banks and more recently an increased demand from the bond markets. Our members, as well as providing long term bank funding at low rates, have facilitated capital market investment in the housing association sector. In 2009 housing associations raised over £800 million in the capital markets and this upward trend continues into 2010. Work is also being carried out to encourage institutional investment beyond that which has been seen to date including through pension funds.

8. A key fundamental to the attractiveness of this lending market for both banks and investors is the availability of housing benefit to those accommodated in the sector. This key source of income to housing associations is crucial to their ability to access and service private finance at favourable rates. Private finance of over £60 billion lent to the sector to date has in the past supplemented public spending in housing and will in the future increasingly do so.

9. Included separately with this submission at Annex 1 is a paper prepared by a member of the CML's social housing panel, the Royal Bank of Canada. This sets out an overview of the potential impact of changes to the key characteristics affecting the risk profile of the sector, of which housing benefit is a major component. The paper puts together this key risk alongside that of the present uncertainty around social housing regulation. You can see that with both of these key risks present there is the potential for the sector to lose its ability to access private finance in the way it has done in the past.

THE IMPACT OF THE CHANGES TO HOUSING BENEFIT ANNOUNCED IN THE JUNE 2010 BUDGET

10. We are still working through with members the likely impact of the short term changes to the local housing allowance and medium term changes affecting the social rented sector announced in the emergency budget. Those affecting the social rented sector have in particular raised the concerns of lenders and investors. This can be seen in recent comments from rating agencies as highlighted in the paper included with this submission (Annex 1).

11. Whilst we do not doubt that the intention is to not only drive forward longer term reform but also make quick changes that reduce the overall cost to government we would caution against making short term cuts that result in the loss of more significant longer term advantages for the sector to lever in much needed investment.

FUTURE ENGAGEMENT TO IDENTIFY THE CONSEQUENCES ON LENDING AT AN EARLY STAGE

12. We are concerned by the speed of change and lack of engagement on the cuts to housing benefit in both sectors announced in the emergency budget.

13. We are keen to engage with government as the policies in relation to housing benefit that will deliver the government's objectives on welfare reform are developed. A key aspect to working with lenders and investors is to ensure that any transition is managed so that the perception and risk of change does not unnecessarily crystallise the loss of confidence and appetite for lending to and investment in the sector.

14. Developing policies and making quick changes to housing benefit in order to deliver the objectives of welfare reform in a way that destroys the ability to lever in private investment to provide homes at an affordable rent seems undesirable for all those involved.

6 September 2010


 
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