EIB uncertainty derails Welsh funding vehicle plans

The EU’s bank has also reassured associations whose loans have been approved by its board that more deals will be signed by the end of the year.

Reports in the national press said the EIB has “cut off” funding to the UK in light of Article 50 being triggered. Sources close to the EIB confirmed there was a slowdown in the spring, but that this was due to a period of due diligence as it considered the impacts of new legislation and potential changes to future contracts.

As a result, some borrowers that wanted a quicker process walked away.

The Housing Finance Corporation (THFC) – which over a 20-year relationship with the EIB has received more than £2.5bn of funding – was pursuing the Welsh funding structure with Community Housing Cymru (CHC) on behalf of a range of social landlords across Wales.

The plan was to use EIB funding to match that from the Welsh Government’s long-term Housing Finance Grant (HFG), at rates of interest “much more competitive than anything else available in the market”.

While not rejected outright by the EIB, Stuart Ropke, chief executive at CHC, said the plan became unworkable.

He said: “From our perspective, things were progressing pretty smoothly. We always knew that there was a risk that some of the politics might get in the way... Things became more difficult and slowed up once Article 50 had been invoked.”

Mr Ropke said some small costs had been incurred since October 2016, but that the real loss was the low rates they were hoping to achieve with the EIB.

He said: “We have signed a housing supply pact with the Welsh Government which means our members will deliver the vast majority of its 20,000 affordable homes target, and the loss of access to this funding means millions of pounds will be paid in additional interest payments, as it is extremely unlikely that an equally competitive funding offer will be available.”

Mr Ropke added that there is still an appetite for a collective platform, but that associations may look elsewhere for funding in the meantime. Earlier this year, Pennaf became the first Welsh association to issue an own name bond.

He said CHC will continue to engage with its members and trade bodies to ensure it finds solutions to the other challenges in accessing the labour and materials needed to build homes if uncertainty persists.

One sector funding advisor put recent EIB uncertainties down to a “complex game of shadow boxing” going on behind the Brexit negotiations, with other sources suggesting that credit teams looking at UK deals have become increasingly conservative as a result.

Piers Williamson, chief executive of THFC, said it is well placed to mitigate a potential loss of the bank as a core funder by raising money in the bond markets. He mooted a domestic EIB for housing, citing KFW in Germany.

In the meantime, the aggregator is working up ‘THFC 2’ – an updated iteration of the bond platform.