The loans will be used to upgrade Britain’s ageing social housing sector, which needs close to £36bn of investment to fully decarbonise, according to the National Housing Federation.
The UK’s National Wealth Fund (NWF) and The Housing Finance Corporation (THFC) launched an unsecured debt facility of £150m (€178.9m) to finance green upgrades of the UK’s social housing sector.
The NWF’s financial guarantee allows THFC to provide long-term, unsecured loans to housing associations. As a result of the fund’s support, Rothesay, the UK’s largest specialist pensions insurer, has committed to provide 100% of the initial £150m investment. Depending on demand, NWF and THFC hope to grow the scheme to £250m in the next six months.
The NWF guarantee offers housing associations long-term unsecured capital at pricing usually reserved for secured lending. It marks the first time NWF has provided guarantees for this purpose to bond market investors.
“This new partnership will unlock £150m in private investment and create further jobs, building on the 6,500 jobs already expected in the retrofit sector across the UK, so more people can get sustainable, high-quality, energy efficient social housing,” said Rachel Reeves, the UK’s Chancellor of the Exchequer.
Social housing providers can use the loans to install low carbon heating and lighting, insulation, renewable energy, ventilation and heating controls, as well as work on resilience measures and biodiversity.
The NWF was established in October last year by the government to help finance the energy transition and drive economic growth. The NWF, which replaced the UK Infrastructure Bank and is wholly owned by the UK Treasury, was set up to become the country’s national impact investor. It will provide £27.8bn of funding to partner with the private sector and local government to mobilise private investment.
About one-third of all socially rented homes in England currently have an Energy Performance Certificate rating below C, a mark that indicates the home is using energy efficient methods and likely has undergone some upgrades to boost its energy performance, according to the NWF.
Close to 15% of all UK homes that are in fuel poverty – meaning they can’t afford adequate heating – are in social housing.
Unlocking capital
As reported by Impact Investor last year, the need to retrofit the UK’s ageing housing stock to improve energy efficiency has proved to be a major challenge for the country’s energy transition. That’s because green upgrades need substantial investment, which most homeowners are reluctant to pay for, while they also don’t generate the revenue streams preferred by long-term private investors.
“This investment is quite illustrative of what we’ve been set up to do – provide practical solutions to complex financing problems. In this instance, our guarantee with THFC has enabled long-term institutional capital from investors like Rothesay to flow into areas, like social housing retrofit, that need low-cost financing,” an NWF spokesman told Impact Investor.
“We’d like to do more in this sector, with THFC and others, and have ongoing discussions with a number of potential providers,” said the NWF spokesman, when asked if it was planning more partnerships for bond market investors.
“The launch of a long-term, attractively priced, unsecured offer into the market by THFC, will accelerate uptake and increase the ambition of projects in retrofit,” said NWF CEO John Flint, announcing the fund launch. NWF’s financial guarantee for THFC will help mobilise long-term institutional capital like Rothesay’s into social housing retrofit, according to Flint.
“Innovative partnerships like these have the potential to unlock significant volumes of institutional capital and we are committed to continuing to work with the NWF and THFC to support the growth of the facility along with other future initiatives,” said Tom Pearce, CEO of Rothesay.
