As referenced above, commercial lenders are currently unable to access the same low-cost funding that is available to the HFA. But as we have seen the HFA are itself no longer able to provide long term fixed rate debt at 2.75% and had to increase this to 3.75% in July 2025. 

With some of the existing debt held by the HFA maturing over the coming years and new debt needing to be raised, the ability of the HFA to secure long term fixed rate debt at competitive interest rates, which is below those that can be achieved by commercial lenders, is expected to dwindle. 

The HFA raises its funding, with the support of a guarantee from the Minister for Finance, largely through the National Treasury Management Agency (NTMA), from local authorities and international agencies such as the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB).  

Up to 2022, interest rates were at historic lows. This allowed the likes of the EIB to borrow at very favourable rates across all maturities and pass that low interest funding to its borrowers, such as the HFA. However, as has been widely published, in 2022 interest rates rose sharply, this will impact on the HFA’s ability to access long term funding at competitive rates from the EIB. 

If these interest rates continue on an upward trajectory, which is expected, this will open the door to AHBs who wish to secure funding from commercial lenders, but whom are currently restricted from doing so because of the lowest lender principles. The likes of Bank of Ireland and AIB want and need to lend to AHBs and will likely be able to match the HFA on lending rates if the HFA are having to borrow and on-lend at higher interest rates. 

With a far more established social housing market, it is worth looking at and understanding how funding of social housing in the UK has evolved in recent years. Our overreliance on state funding is in complete contrast to the approach in the UK. The reduction in grant funding, together with the increased demand for affordable housing developments meant that the approach of relying on state funding was no longer feasible if social housing supply was to meet the demand in the UK. 

As a result, the funding of social housing in the UK has evolved to a mixed funding approach of government grants and private finance. Pre-2008, that private finance principally took the form of long-term loans from commercial banks.  However, following the reduction in availability of longer-dated bank funding, the capital markets have filled the gap – with drawn amounts of private finance to the sector by means of bond finance overtaking that of bank funding in 2021.

Registered Providers and Registered Social Landlords (UK equivalent to AHBs) (RPs) obtain capital markets funding by means of private placements and publicly offered listed bonds – typically bearing a fixed interest rate and with maturities of 30+ years.  The interest rate payable will depend on a number of factors, including the credit quality of the issuer and then current gilt rates (which themselves will depend on the maturity date and prevailing market conditions). Current interest rates in the sector are around 6% to 6.5% (made up of the gilt yield, plus margin), though have been as low as sub-2% historically.    

These bonds can be accessed by RPs in two ways:

i. Own Name issues which are subdivided into direct and in-direct issuances. 

• A direct issue is where the RP itself acts as the issuer and grants the security itself over the housing stock being acquired and/or funded. 
• An in-direct issue is where the RP has a financing vehicle within its structure (the Issuer) which issues the bond and then on-lends the funds to the RP that is actually acquiring / funding the units. The RP grants security to the Issuer over the housing stock. The Issuer in turn grants security to the bondholders over (i) its repayments rights under the intra-company loan with the RP, and (ii) its rights in the security over the housing stock that the RP granted to the Issuer.  

ii. Pooled Funding issues, which are similar in some respects to an in-direct issue, but the funding vehicle is a third party often referred to as an “aggregator”. These aggregators issue the bonds and then on-lend them to various RPs, typically smaller RPs more akin in size to the dominant AHBs in the Irish market. As these aggregators are typically capital market specialists raising finance on an aggregated basis, they can avail of more favourable terms than a smaller RP would be able to get access to. The bondholder is typically granted security by way of a floating charge over all assets of the aggregator. In respect of the on-lending to the RP, the security taken by the aggregator is a fixed charge over the specific housing stock to which the on-lend relates. This allows each RPs loan from the aggregator to be treated severally from any other RPs obtaining a loan from the aggregator under the same bond issue, which avoids any cross-contamination in the event of default by an RP. The UK Government has supported this aggregation via the Affordable Homes Guarantee Scheme. The current (2020) scheme in England provides guarantees by the Ministry of Housing Communities and Local Government (MHCLG) of up to £6bn of loans to RPs to both support delivery of additional new build homes and also to improve the quality of existing stock, but ultimately the loans are funded by the capital markets bond programme. The current 2020 scheme is run by ARA Venn as aggregator whilst the previous (2013) scheme was run by The Housing Finance Corporation and provided guarantees on £3.5bn (providing circa. 32,000 new homes). 

In terms of why the private sector would be interested in funding social housing:

• these bonds provide conservative investors seeking stability (such as pension funds) with long term stable assets, with the RPs paying off the interest via rental income; 
• RPs in the UK are regulated bodies - the Regulator of Social Housing (for the UK), the Scottish Housing Regulator (in Scotland), the Department of Communities (in Northern Ireland), and the Welsh Assembly Government (for Wales);
• whilst not guaranteed by the UK Government, RPs are viewed as having implicit government support due to the fact they are providing social housing and, as referenced above they are regulated bodies;
• there is a low default risk – the UK housing association sector is a 'no loss' sector, i.e. to date no creditor has ever lost money;
• RPs are credit rated in the UK by bodies such as Moody’s, S&P and Fitch, with the majority of RPs falling into a rating of Aa2 to A1. Having such a rating would indicate that these bodies are seen as safe investments, with Moody’s reporting on RPs in the A1 rating category as being “of very high default dependence between the group and the UK Government and a strong likelihood of extraordinary support in the event that such an entity faces liquidity stress”; and
• the housing stock serves as collateral in the event of default, meaning the houses could be sold if needed to pay creditors. However as noted above, the perception is that the regulatory and/or the UK Government would step-in in the event of a default.