A new National Housing Bank to catalyse funding for housebuilding

The UK Government’s support for housing continued at the end of last week, with their announcement of the creation of the National Housing Bank. 

The National Housing Bank will be a public financial institution, housed within the government’s housing and regeneration agency, Homes England.  The government announced that the National Housing Bank will be loaded up with “£16 billion of financial capacity, on top of £6bn of existing finance to be allocated this Parliament, in order to accelerate housebuilding and leverage in £53 billion of additional private investment, creating jobs and delivering over 500,000 new homes.”  Some capacity will be also devolved to the Greater London Authority or mayoral strategic authorities, which could enable it to be used in alignment with specific regional priorities and needs.  With an arsenal of financial tools at their disposal, including equity investment, guarantees and loans, they are aiming for 60,000 homes to be delivered within the current parliamentary term.  

Social housing providers will have access to £2.5 billion “low cost” loans. However, it seems that a larger portion of the £16 billion National Housing Bank support will target the private sector. 

The government have indicated that the National Housing Bank will support a wide range of housing development, including larger sites which “struggle to get up-front lending given their risk and complexity”.

Lack of finance is often cited by builders as a key barrier to housing development. The 2007-8 financial crisis was in part created by predatory mortgage lending by banks.  Subsequently, structural and regulatory rules were imposed on banks with a view to preventing a rerun. As a result, the risk-averse banking sector turned away from smaller housing developments and towards large scale projects or commercial developments that had a guaranteed return.  This impact has been one of many contributors to the current housing crisis. 

Homes England already provide development loans to small and medium (SME) housebuilders to build more homes and expand their businesses.  At the end of 2024, the government announced continuation of a £3 billion housing support package for SME housebuilders, managed by Homes England, to help them to access more affordable credit. The government promises that the National Housing Bank will create alliances with bank lenders and make available revolving credit facilities to SME developers, to further encourage private sector contribution towards the government's new homes target.

In the last six months the government has used the National Wealth Fund, another public financial institution, in a similar manner to facilitate favourable lending terms from private sector lenders to social housing providers.  The National Wealth Fund have collaborated with Barclays, Lloyds, Natwest and The Housing Finance Corporation (funded by Rothesay)  to facilitate four separate schemes, whereby a NWF guarantee enables the bank to offer better-than-market funding terms to housing associations for purpose-specific loans.  It is a condition that these loans are ring-fenced for decarbonisation retrofit works to the borrower’s social housing portfolio.

The government will need to ensure that the National Housing Bank does not subsidise developments that would have proceeded without any support, nor that it replaces private capital that would have been available anyway.  Nonetheless, if administered correctly, alongside £39 billion of grant funding and a 10 year rent settlement for social housing and with the government also seeking to address other barriers to housing development (such reform of the planning regime, encouraging private investment in infrastructure - including housing and social infrastructure in line with the Government's new 10 year Infrastructure Strategy, skills investment, and an ongoing commitment to fund the Affordable Homes Programme) we can hope that the housing shortfall will, if not eliminated, be significantly reduced. 

Devonshires have many years of advising on real estate investment and development projects.  Do get in touch with finance lawyers, Gary Grigor or Alice Overton, or real estate lawyers, Jonathan Corris and Caroline Mostowfi, for further information of how we can help you.