Warrington underwriting housebuilding in other towns

[grey_man]

Especially for Steve Parish

 

Why is Warrington Borough Council committing the people of Warrington to facilitate and apparently underwrite hundreds of millions of pounds of investment in other towns over a period of 25 years? And what happens if one of the Housing Associations outside the Borough defaults on the loan?

 

I understand those questions may not fall within your responsibilities or expertise but would be good to have a response from within the council. 

[algy]

It Certainly would be very desirable!!!!.

[Evil Sid]

but unlikely to make sense.

[grey_man]

Could we just let Steve (or somebody) answer? Seems a straightforward enough question

[Davy51]

Didn't they lend the money to Helena with whom Golden Gates have announced a merger ? 

[grey_man]

I think that's right but two thirds of the houses planned with the loan are in St Helens from what I can tell so the question remains.

[Davy51]

I think what is just as strange is that it is in a completely different county or city region as Liverpool now likes to be called.

[grey_man]

Hopefully Steve's response will clarify on what is happening now that he's removed the distraction of people making silly accusations of any ulterior motives. So, we can ask, without any problem, why Warrington Borough Council is investing pro rata £54 million in housebuilding in St Helens, what happens in the event of default - presumably the people of St Helens taking on that element of the debt - and what the returns are for the people of Warrington in the event that the loan facility runs its full 25 years.

 

Over to you, Steve.   

[Bazj]

where did the other thread go?

[grey_man]

Steve threatened to sue, even though no specific accusations were made or individuals named, not least him, so he couldn't. So to be fair, this is a chance for him to explain rather than get involved in a slanging match, which is what he claims he wants. 

 

Do you get me?

[boris1066]

where did the other thread go?

Good question ? Why weren't the offending posts simply removed ?  We've heard nowt from Dizzy.Perhaps she has been silenced and  is bound and gagged in an affordable housing area in St Helens or Chester perhaps maybe even in Merseyside ? Volunteers sign for a rescue party !!

 

In the mean time the question hangs.

[Steve Parish]

Steve threatened to sue, even though no specific accusations were made or individuals named, not least him, so he couldn't. So to be fair, this is a chance for him to explain rather than get involved in a slanging match, which is what he claims he wants. 

 

Do you get me?

 

This is the problem; even in this there's misrepresentation - I did not threaten to sue (as I wasn't defamed) but said I would not contribute further (to the Forum at all) unless the defamatory posts alleging corruption (with no evidence whatsoever) were removed. As they have been, I will simply iterate the basics: the council borrows from the Public Works Loan Board, and lends at a higher interest rate to housing associations to build houses (not all in Warrington). There's "due dilgence" done and risk assessments, but "commercial privilege" (see the links below) means not all the details are revealed (I'll check whether there's anything more now in the public domain).

 

Houses are built, that's good for the economy, we get a few million pounds a year in net interest, a government minister says what a good idea, and the external auditors are OK with it. It may not be entirely risk-free, but neither is leaving money in a bank....

 

http://www.socialhousing.co.uk/warrington-council-lends-90m-to-helena/7001973.article

 

http://www.room151.co.uk/funding/warrington-lends-90m-of-pwlb-borrowing-to-housing-association/

 

The Scottish Government has actually issued guidance to councils on how to do it http://www.scotland.gov.uk/Resource/0045/00451078.pdf and Edinburgh has an application form online for landlords to apply! http://www.edinburgh.gov.uk/info/20059/area_regeneration/358/loans_for_rsls_to_build_homes

[grey_man]

.

[grey_man]

We already know the basics. What we don't know is why the council is putting the people of Warrington at risk for the benefit of other towns. Do you concede that local people are underwriting housebuilding that is overwhelmingly in St Helens and other districts? 

I also don't believe the net interest is millions.

 

From that Scottish guidance:

 

"A number of Councils have asked Scottish Ministers to consent to them borrowing to on-lend to a Registered Social Landlord (RSL) or a RSL subsidiary in their area" 

 

"Lending is not the core business of local government and there is no policy intent that Councils will generally provide the RSL sector with loan finance"

 

"A number of RSLs have indicated that on-lending by their local council could help"

 

"Councils’ Local Housing Strategies (LHSs) provide direction to tackle housing need and demand and to inform the future investment in housing and related services across the local authority area."

 

"Any proposal to on-lend to a RSL or a RSL subsidiary should support the housing development priorities as set out in a Council’s SHIP". (I assume housebuilding in Chester, Merseyside and St Helens is not part of Warrington's strategy)

 

"The risk assessment must consider both the financial and the non-financial impacts of any default. The risk of default includes the risk of non-payment, including the risk of non-payment by the RSL due to their inability to refinance a debt at term"

 

 

I agree nothing is risk free but there's a reason I and my family don't take on massive financial risks for the benefit of our neighbours and I don't know why the council is doing it. 

 

 

[Bazj]

.... and do any other councils lend money to housing associations to build social housing in Warrington? If not why not? surely they must be queuing up to jump on such a profitable bandwagon?

 

Makes you wonder

[inky pete]

A few millions per year in net interest?????

 

On £90 million that would mean that WBC are charging GGHT/Helena at least 2 or 3 on top of the rate charged by the Public Works Loan Board - which is currently between 3.6% and 4.05% for a 25 year term fixed rate. (http://www.dmo.gov.uk/reportView.aspx?rptCode=D7A.2&rptName=3de841b1-095a-479d-ab56-456d03bc575f||PWLB%20%282%29&reportpage=Current_PWLB_Fixed)

 

So for Steve's statement to be true then WBC must be charging GGHT/Helena an interest rate of between 6 and 7% - FAR more than the banks would charge any reasonably financially sound organisation to borrow money for building captal assets.

 

And we STILL don't have an answer to the question of what happens in the event of a default by GGHT/Helena, is the debt insured? If so, what is the cost of that insurance? And if not, WHY THE HELL NOT????

[Dizzy]

where did the other thread go?

 

 

Good question ? Why weren't the offending posts simply removed ?  We've heard nowt from Dizzy.Perhaps she has been silenced and  is bound and gagged in an affordable housing area in St Helens or Chester perhaps maybe even in Merseyside ? Volunteers sign for a rescue party !!

Sorry I've been out all day but no need for a rescue party Borris as I've been let back in my house now ....

 

I edited the posts in the very early hours of Friday morning that were reported as possibly being defamatory etc and I removed the offending wording (each had an 'edited by Dizzy'  mark at the bottom to show I had done it)

 

I did NOT completely delete any posts or the whole topic though as I though editing out the specific  'bits' that a couple of people had put was all that what was required.  I guess that was not enough it has been necessary to delete the whole topic since then and Gary must have done it.  Shame that all the other info and posts have gone now too though !!  Guess we'll have to start again...can anyone remember what I said or asked      

[Steve Parish]

If the housing associations default, then like any mortgagor we take the asset (though more likely another housing association would step in and take over over the debt). Even just the £90m to Helena at a net interest rate of 1.25% would bring in over a million pounds (though we only lend as the houses are being built, it's not all up front). I think the eventual expectation is over £3m a year, which will help stave off more cuts.

 

As I can't distinguish between genuine concern and mischief-making, I'm not spending any more time on this. Feel free to write in to the Council and ask.

[inky pete]

So it's now "over £3million a year" - which means charging GGHT at least 4% on top of the PWLB fixed rate of 3.5 to 4%.

 

So, that's 8% which GGHT will have to be paying. FAR more than they could borrow it for elsewhere - and also well in excess of their likely total rental yield on the properties which is going to be around about the 6% mark for social housing rents.(£80 - £100,000 to buy the land and build each house, rent around the £400 per month level comes out at 5 to 6% annual yield, out of which GGHT will also have to perform repairs and administer tenancies)

 

GGHT will be bust within a couple of years based on those figures, and any council department or other housing association stepping in will face exactly the same problem. The bottom line is that the costs of this loan outweigh the income the assets could possibly generate. The tenants will have secure, lifetime tenancies so the houses couldn't even be sold off on the open market to pay back the debt.

 

Maybe that's why GGHT/Helena have come to us for the money - no professional lender would touch such a proposition with a bargepole. St Helens council can obviously see this!

[Freeborn John]

Borrow from a government agency at low interest and no asset loss in case of difficulties.

Lend that same cash straight out again to various housing associations at a higher interest rate with asset seizure in case of default.

Is this sort of coin clipping common in Local Government?

[inky pete]

The other issue nobody is mentioning is, of course, Right to Buy.

 

After 5 years the tenants of these new properties will have the legal right to buy them at a very large discount - 35% for a house and 50% for a flat, increasing by 1% for a house and 2% for a flat for each additional year.

 

So 10 years down the line GGHT/Helena could easily find itself in a situation where they no longer own many of these properties, have received only around half of their value in Right to Buy sales, have NO rental income coming in from them, but still have the vast majority of the debt to us to pay off. Cue GGHT/Helena insolvency and WBC council tax payers left holding the baby.

[grey_man]

The other issue nobody is mentioning is, of course, Right to Buy.

 

After 5 years the tenants of these new properties will have the legal right to buy them at a very large discount - 35% for a house and 50% for a flat, increasing by 1% for a house and 2% for a flat for each additional year.

 

So 10 years down the line GGHT/Helena could easily find itself in a situation where they no longer own many of these properties, have received only around half of their value in Right to Buy sales, have NO rental income coming in from them, but still have the vast majority of the debt to us to pay off. Cue GGHT/Helena insolvency and WBC council tax payers left holding the baby.

 

Which returns us to the core question - why is Warrington investing in other towns? It seems unlikely that a return of 1.5 percent is the reason if, as they keep telling us, you can multiply an investment in housing many times over in terms of economic outcomes and increase in income for the council. Too small returns and too much risk for this to make sense. Not to mention the bizarre sight of a council investing in another town. And if it's not bizarre, who else is doing it and where are the tens of millions from St Helens and Chester coming into Warrington? 

 

Oh, and Steve, I keep hearing this thing about 'mischief making' whenever the council is posed difficult questions it doesn't like. Laurence Murphy used it about the people opposed to the closure of Stockton Heath tip. Right up to the point he realised he was losing votes and these people weren't 'mischief makers' but residents concerned about the actions of the council, as is the case here.  

 

Incidentally, in an interview a guy called Danny Mather who is corporate finance officer at WBC said:

 

“I would not describe this as a pure investment by the council. Our prime aim is economic regeneration. It will be investing a chunk in Warrington, but we are not sure what proportion because it depends on the development sites which come up.” He said that the cash could also be used by Helena to refinance its existing portfolio.

 

So the prime aim is economic regeneration but we don't know how much will be in Warrington and whether it would be used on existing assets? Really? 

[inky pete]

If they choose to use it for "refinancing existing assets" then there will be absolutely NO economic benefit in terms of creating or sustaining construction jobs and the tenants resident in those properties will have an even bigger Right to Buy discount available to them - so we'll see even less of our money back when GGHT/Helena does go bust.

[grey_man]

If they choose to use it for "refinancing existing assets" then there will be absolutely NO economic benefit in terms of creating or sustaining construction jobs and the tenants resident in those properties will have an even bigger Right to Buy discount available to them - so we'll see even less of our money back when GGHT/Helena does go bust.

 

If you did 'write in to the council' as one of our elected representatives tells us, I imagine you'd be wasting your time because we already know the official line.

 

'It's all about economic regeneration'

 

That is also the gist of what the hapless Terry O'Neill says in his press statements, omitting the final part of the sentence.

 

'....in St Helens, Chester and Merseyside, and hopefully Warrington too.' 

[boris1066]

Reference Warrington Guardian :  Harrison Square development in Dallam is a joint venture between Warrington BC and Helena. Retail developement etc part of "Wellbeing Programme" what ever that is.

So  how is this being financed? A loan from from WBC?