The UK’s National Wealth Fund plans to guarantee £250mn of loans to improve the energy efficiency of hundreds of thousands of homes, in a move it hopes will attract bond investors to help the government meet its climate goals.
The NWF said it had guaranteed an initial £150mn of loans provided by The Housing Finance Corporation which lends to housing associations, and financed by insurance company Rothesay. A further £100mn is planned within the next six months.
The move would bring the total amount the state-backed fund has underwritten towards retrofitting social housing to £1bn, following its assurance of £750mn of loans from Lloyds and Barclays late last year.
“Retrofit is hugely important for us, if we are going to decarbonise the economy you need to generate electricity without making carbon and you need to stop all of the heat leakage out of houses and also get them to heat their own homes with things other than gas,” said Ian Brown, head of banking and investing at the National Wealth Fund.
The pricing of Rothesay’s initial loan was not publicly disclosed but NWF said it was priced “competitively” with wider secured lending to the market. A person with knowledge of the loans said the yield was one or two basis points above government borrowing costs.
The loans will be made to housing associations through the Housing Finance Corporation, the UK’s leading affordable housing aggregator, which said that its partnership with National Wealth Fund was key to providing low cost financing to the beleaguered social housing sector.
“We’re trying to get more bond investors like Rothesay to provide more financing to the sector . . . this is an example that hopefully we can scale because the task at hand to retrofit is so vast,” said Priya Nair, chief executive of THFC, who added that the deal marked the first time an insurer had made loans exclusively to fund retrofitting.
The loans will be used by housing associations to fund projects including small scale renewable energy, low carbon heating, insulation and water efficiency.
The UK’s social housing stock is estimated to require more than £30bn of investment for upgrades to hit government deadlines in 2030, according to the National Housing Federation, which represents housing associations.
The sector is also facing multibillion pound bills to fix dangerous cladding following the Grenfell Tower fire and meet new standards on mould and repairs under Awaab’s Law. These pressures have created a financial crunch and contributed to a drop in new affordable housing.
Ministers interference with social rent-setting in recent years has hampered housing associations’ ability to access low cost borrowing. The government has now proposed a five-year rent settlement, and is consulting on extending this to 10 years.
The UK Infrastructure Bank was rebranded as the National Wealth Fund by the Labour government in October last year, and given a broader remit to invest across the UK’s industrial strategy. The budget for the organisation was increased from £22bn to £28bn.
However, only £4.5bn of the available funds have so far been deployed. Brown said he expected to deploy the full £28bn by the end of this parliament.
“I am very happy with the pace we are deploying . . . what’s really important is we only do it where we are needed,” Brown said, adding that at least £10bn of the organisation’s available capital would be in the form of guarantees to other institutions providing the capital.
Other investments by NWF this year include a £92mn loan to Denbighshire County Council for coastal flood defences, £55mn equity investment in EV charging operation Connected Kerb and a £43.5mn equity investment in sustainable packaging company Pulpex.