The financial environment in 2024 continued to be challenging for registered providers (RPs). Gilts and interest rates remained high, meaning that the cost of borrowing did not reduce to the levels that RPs have historically enjoyed. Competing demand on spend, including on major works resulted in some RPs having to amend their financial covenants. Generally, the keyword for financing in social housing in 2024 was “simplicity” with RPs primarily turning to bank debt, such as revolving credit facilities, for their financing needs.  

Looking forward, we set out what we anticipate will be the key trends in 2025 for social housing finance: 

Equity Finance  

While the sector has flirted with equity investors for several years 2025 is the time for RPs to embrace equity finance and look to it as a serious new source of funding. We know that equity investors are increasingly interested in the sector and the diverse tenure of assets available for investment. In an equity funding arrangement equity investors will inject cash into the funding structure with the RP also providing seed funding either via an injection of cash or seed assets. The RP can then bundle up assets (usually shared ownership properties) in the structure until they have matured and reached a sufficient yield before moving them out of the structure or selling them. If set up correctly equity funding can be kept off balance sheet allowing registered providers to continue developing and growing at pace without their existing financing covenants being affected.  

Equity funding does come with a slightly higher risk profile than RPs (or their boards) may be used to but 2025 is the year for RPs to embrace different types of funding to ensure a diversified funding portfolio. Equity funding has huge advantages in terms of off-balance sheet funding and the degree of yield that the assets can produce and is something RPs should give serious consideration to. 

How Capsticks Can Help 

At Capsticks we have been helping registered providers to structure equity funding deals. If you would like to talk about how equity finance could assist your organisation, how to find the right partners or how you could structure such an arrangement we would be delighted to help.  

Institutional Investment  

We anticipate a strong return to institutional investment including private placements in 2025.  The sector has always been attractive to institutional investors (with its reputation as a “no default” sector and the long-term stable cash flows produced by affordable rent) but the rent cap affected the appetite of investors. With the Labour government committing to an ambitious house building target and the promise of a 10-year rent settlement, institutional investment is likely to increase in the sector.  Investment has traditionally come from a small handful of investors in the UK and the US including several US pension schemes and utility companies. We anticipate that the prospect of a rent settlement will result in a compelling case for institutional investment in the sector (especially those looking to commit sterling to a social linked investment) and we will see a wider range of institutional investors being interested in working with the sector.  

How Capsticks Can Help 

Our banking team has years of experience advising registered providers on institutional investment. We have advised RPs on secured and unsecured private placements in both the US and UK placements. We have also advised on sustainability linked private placements.  

Capital Markets Issues  

While investing in the capital markets continued in 2024 bond issues were few and far between. As interest and gilt rates stabilise in 2025, we anticipate seeing RPs return to the capital markets with enthusiasm. Several RPs are already working on this with us by setting up EMTN programmes, which will permit them to capitalise on attractive gilt rates and issue quickly when the time arises. We are working with RPs to streamline their governance arrangements and enter into security trust deeds, which are very flexible and can be utilised to charge properties to a wide variety of funding arrangements. We are helping RPs to simplify or repay smaller financing arrangements and assisting them with identifying and charging properties so that they are ready to be allocated to capital markets investors as soon as the funding environment is right.  

It will be important for RPs to consider timing carefully when it comes to investing in the capital markets in 2025. Many RPs have a number of funding arrangements that they will need to refinance in the next 18 months. What RPs don’t want is to hit the market at the same time as several other associations and find that investors reach capacity quickly. It will be important for RPs to liaise closely with us and their treasury advisors to ensure that they go to market at the most beneficial time.  

How Capsticks can help 

Our banking team at Capsticks are debt capital markets experts and have advised registered providers on a variety of debt capital markets issues (both secured and unsecured) including retail bonds, own name bond issues and the setting up of EMTN programmes. We would be delighted to assist you with your capital markets issuance. 

Green, social and sustainable finance  

In 2024 we saw a number of RPs move away from sustainability linked loans (which had, until that point, been one of the most popular ESG linked financial products in the sector. Several RPs with sustainability linked loans converted them to normal debt facilities due to concerns over obtaining annual sign off of ESG metrics from auditors and the low “geranium” offered (the cost benefit of these products if selected KPIs are met). Arguably, sustainability linked loans were products that RPs entered into because they wanted to enshrine their sustainability journey in their financing arrangements and hold their feet to the fire in terms of metrics. The pricing benefit was seen as an added bonus but not an incentive. However, with concerns over the need for third party sign off adding additional costs in 2025 we would like to see funders try and revitalise interest in ESG financial products by offering a much higher discount or pricing benefit for entering into an ESG linked financing. The sector has an incredible narrative to tell in terms of ESG and is ideally suited for ESG financial products but the costs of compliance need to be proportionate to the pricing benefit the RP receives. 

Retrofit 

Will 2025 be the year we finally crack retrofit?  

While there are products out there (like the Energies prong model) these tend to take a fabric first approach which is expensive and difficult to scale up quickly. The sector is desperately in need of funding for retro-fit works. Arguably not enough focus has yet been placed on the need for climate adaptation in relation to residential homes. The UK’s housing stock was built to withstand cold winters and average summers with insulation prioritised over ventilation. But warmer summers and housing stock meant to keep heat in are causing increased issues such as damp and mould.  

Funding under the Affordable Housing Guarantee Scheme can now be utilised for retrofit works (although half of any amount borrowed must go to building new homes). Meanwhile, a National Wealth Fund has been established by the government to target retro-fit which will see Barclays UK Corporate Bank, Lloyds Banking Group and The Housing Finance Corporation Limited deliver £1 billion of funding to accelerate the retrofit of social housing in the UK. We look forward to seeing the details of the scheme in due course.  

 How Capsticks can help 

We are green, social and sustainable finance experts and have been advising registered providers for years on all forms of green and social linked funding including retro-fit funding options. The head of our banking team sits on the City of London Law Society’s ESG Committee and was part of the working group that put in place the initial iteration of the Sustainability Reporting Standard and the LMA Real Estate Sustainability Linked Loan Principles.  

We are experts in the field and would be delighted to assist you with ESG reporting or your green/social/sustainability linked funding needs.