Legal & General is to start providing loans to housing associations, the latest example of a new lender moving to take advantage of the shortfall in bank finance to the property sector.
The insurer, which extended its first loan to the property sector last month, is already in advanced negotiations with at least one housing association and is expected to complete a deal within the next few months.
The UK’s 17,000 housing associations have depended heavily on bank loans to finance the development and maintenance of their property portfolios.
However, tough regulatory changes and high levels of exposure to property have caused banks to pull back from lending to the sector, opening the door for a new wave of debt providers.
Ashley Goldblatt, head of commercial lending at L&G Investment Management, said: “It is a low-risk corner of the property sector which has a substantial need for long-term financing.”
Mr Goldblatt estimates that social housing landlords will need to borrow £20bn over the next five years to meet demand.
“The banks which were lending to social housing landlords are out of the market for now, and government grants to the sector are only going to reduce,” he said.
The arrival of institutional investors providing loans to housing associations is the latest evidence of a sector forced into finding new funding streams because of the sharp withdrawal of banks from the sector.
Banks are quitting social housing because they lent to the sector at low margins before the crash and many of those loans are now under water.
Associations have raised billions of pounds this year through the bond market to adapt to the vacuum created by banks. Even so, the shortfall in finance has taken its toll on the sector.
The number of new homes registered by housing associations fell to 7,090 during the three months to June, down 41 per cent from 12,000 for the same period a year earlier, according to figures from the National House-Building Council.
As a result, more than 20 housing associations have issued £5.4bn of bonds since 2008, more than the previous two decades in total.
Issuance is set to hit a record £3bn this year.