Winckworth Sherwood’s Patricia Umunna considers the Home Building Fund for new development.
In the 2017 budget Philip Hammond increased the funding available for the Home Building Fund from £3bn to £4.5bn to support the building of new homes. The fund provides finance for loans, which are made available by Homes England to private sector entities provided they meet certain core eligibility criteria. The GLA also receives funding from the Government for housing, which is administered by City Hall and is also made available to private sector entities through loans.
The HE loans are made available usually for a five-year term for development finance. Interest is normally at a variable rate. Usually sales income can be recycled and Homes England will consider allowing other external funding into the borrower subject to Homes England having priority in terms of repayment and ranking of security. Financial covenants are normally light and often just include a loan to cost and a loan to development value.
The GLA loan documentation is very similar to the Homes England documentation but both are quite different to the Loan Market Association (LMA) form of loan agreement, which is used by most banks and neither follow the LMA format. It is a standard form of document and assumes a simple funding structure for a single development with related covenants and terms. Homes England and GLA have both shown willingness to fund unusual developments and become involved in complex funding structures but their standard form documents do need to be heavily adapted to accommodate anything more bespoke.
Another difference to the usual bank form of loan agreement is that the Homes England and GLA agreements contain additional standard terms and compliance conditions, which are governmental requirements. Like most banking loan agreements, a Homes England/GLA loan agreement will include specific clauses relating to anti-money laundering, Counter Terrorist Financing, Know Your Customer, Anti-Bribery and Anti-Corruption. In addition, there will be extensive clauses not usually in banking loan agreements, relating to public relations, publicity, confidentiality, freedom of information (as it applies to a government body), data protection, intellectual property and state aid.
Usually a Homes England/GLA funding agreement must be signed and completed by 31st March of each year because of government budget requirements. This does mean that completion is time critical and because of government signing protocols it is usually necessary for the documentation to have been completed and ready for execution two or three weeks prior to 31st March. GLA funding documentation, although very similar to the Homes England documentation, does also contain covenants, which are GLA/London specific. These are further requirements such as compliance with the London Plan, ensuring that employees working on the development are paid the London Living Wage, and compliance with other GLA regulations and guidance. In addition GLA interest is usually at a fixed rate.
Although these funding documents can be seen as onerous and covenant heavy when compared with a usual bank style loan agreement the financial covenants are often much lighter and usually just based on loan to value ratios. Another advantage is that as the Homes England/GLA interests are more aligned with the borrower (ie to build more houses) than would be the case with a bank, Homes England or GLA can have a more flexible approach when any amendments or consents are required during the period of the loan.