As previously discussed in the article "The story behind the recent merger trend within the social housing market", there are many reasons why a housing association would consider merging, ranging from economies of scale to meeting the demands of government.
Another potential result of recent merger activity, which will hopefully continue, is improved levels of corporate governance and operational capability amongst housing associations. This would make the housing sector better equipped to attract the funds it requires – the ability to attract these funds is fast becoming imperative for housing providers.
Funders have identified that the affordable housing sector has "favourable long term structural demand drivers, liability matching return characteristics, with the potential for growth and insulation from volatility... best opportunity for social impact and long term investors are increasingly looking for ethical opportunities". Current and further merger activity should further enhance the willingness to invest in this sector.
From a housing association perspective, the prospect of a merger is made more enticing by the potential to create a bigger pool of security and assets to enable further borrowing, and to take advantage of the influx of new investors. The current funding market is favourable to these housing associations, enabling them to access structures previously not available in a variety of ticket sizes and at very competitive levels.
However, with more choices of funding available, newly-merged housing associations are looking for more from their funders beyond just financing. They are also examining funders who provide long term support, bespoke funding structures, covenants and deferred drawdowns, or the ability for associations to quickly top up their funding.
Funders are taking a proactive approach to the recent merger trend within the social housing market, coming up with innovative ways to attract the larger and more streamlined housing associations following their mergers. Traditional lenders have been able to offer low margins with new ESG products whilst capital markets have been able to provide funding with flexibility, resulting in housing associations borrowing more than ever.
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