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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