A sector in need of a new model
Despite facing an acute housing crisis in the UK, developing and funding affordable housing has slipped down the agenda for successive British governments. Other issues have taken precedence for local governments and housing associations too.
The funding gap for affordable housing has led housing associations to seek new sources of capital. Following the financial crisis, the social housing funding landscape has been characterised by peaks and troughs. The need for permanent, long-term funding options was paramount.
MUFG, which launched a housing finance business in 2015, has sought to shake-up the sector's financing model with a solution that is fit for the long-term.
Partnering for posterity
As it entered the sector, MUFG invested significant time and resource to understanding the intricacies of the market, the housing associations' requirements and the potential opportunities for involving institutional investors.
Following numerous conversations with housing associations, it became clear they needed a funding solution that would better suit their business models. Long-term assets, like houses, need long-term funding. But building new houses in the short-term is a capital-intensive process. Ultimately, the housing associations required the benefits of both short-term flexibility and long-term funding commitments.
In recent years, institutional investors' demand for social housing assets has steadily increased. MUFG has sought to match this demand with those of the housing associations.
In 2017, MUFG has closed two cornerstone deals with leading housing associations and institutional investors.
In one of the first deals of its kind, MUFG acted as Mandated Lead Arranger (MLA), Private Placement Note Arranger and Agent on a £50m two-year Revolving Credit Facility for Network Homes, which will be followed by a take-out from BAE Systems Pension Fund in the form of 32 and 34-year £50m private placement notes.
MUFG then acted as MLA on a £75m three-year RCF for Sanctuary Group, which will be followed by a take-out from BAE Systems Pension Fund in the form of a £75m private placement note.
A scalable, sustainable solution
In partnership with housing associations and institutional investors, MUFG has designed a new solution that is scalable and sustainable over the long-term. It has seen healthy demand from housing associations for this innovative model. Armed with the confidence that it is transforming the funding landscape of such a crucial sector, MUFG's commitment to supporting social housing in the UK is only just beginning.
Tony King, Group Treasurer for Sanctuary Group, said:
"Sanctuary was delighted to conclude its first funding arrangement with MUFG and as part of this, further develop its existing relationship with BAE Systems Pension Fund. Incorporating it within Sanctuary's existing Group treasury structure makes it efficient in terms of our operations and security, and it will assist in funding the Group's ambitious development programme to build over 30,000 new homes in England and Scotland by 2027."