M&G in long-term financing for UK social housing groups

M&G Investments has issued financing to two UK-based social housing providers, according to the Prudential Group fund.

The asset manager has arranged a £50 million 40-year private placement to Ocean Housing, a social and affordable housing provider in Cornwall in the UK. It has also provided a £25 million 30-year bullet loan to Suffolk Housing.

The Ocean Housing debt will allow it to build over 500 new homes in the south-west region of the UK, which is experiencing a housing shortage compounded by a growing population. The properties will be a mix of rental and shared ownership units, said David Renwick, group chief executive of Ocean Housing Group, in the statement.

The facility is amortising with a 10-year interest-only payment period.

The Suffolk Housing debt will finance the purchase of 400 existing properties during 2015 and the construction of 70 new homes a year over the next three years. The additional properties will take Suffolk Housing’s total stock to around 3,300, according to the statement.

Direct lenders like M&G are making more inroads into the housing association debt market, said Mark Davie, head of social housing at M&G.

The association facilities are typically structured in a similar way to residential mortgages with long-tenor financing secured against the value of the underlying property – although in the housing associations case, it is a large pool of properties.

The collateral is generally flexible, allowing the association to dispose of or buy new properties at will, as long as they meet a specified asset cover ratio, Davie explained.

“Banks have dominated this market and are still playing – they have large legacy debts totalling around £50 billion which they no longer want [to keep on balance sheet]. The [banks] are very keen to do five- or even 10-year facilities, but that doesn’t suit housing associations as they want to avoid refinancing risk,” said Davie.

This makes this particular type of debt an ideal match for the long-dated investments that pension funds are seeking, added Davie.

M&G Investments manage £254 billion across fixed income, equity, real estate and multi-asset strategies. The firm has invested over £5bn in UK social housing through property transactions, public bonds and private placements.