Affordable Homes Guarantee Scheme

The Affordable Homes Guarantee Scheme (AHGS) expansion opened for applications last month, writes invetsment manager ARA Venn.

The scheme provides cost-effective loans to support the sector’s investment in new and existing homes

It has increased in size from £3 billion to £6 billion and the scope expanded so, in addition to financing new homes, it can also now support investment to improve existing homes, including spend on decarbonisation, housing decency, and building and fire safety. The loans continue to be structured as general corporate purpose facilities, which provide flexibility on the day 1 use of loan proceeds.

Originally established as a cost-effective, government-backed lending scheme to support the delivery of new affordable homes by private registered providers, the expansion in scope reflects recent sector and market pressures which have seen greater need for investment in existing homes as well as a general reduction in development pipelines. In this context, the AHGS has evolved to continue to offer support to a wide range of housing associations who are committed to new development as well as maintaining high quality existing homes. Borrowers can now also access a shorter loan tenor of 10 years under the scheme, which supplements the 30-year offering and reflects direct market feedback in a higher interest rate environment.   

As at the end of February 2024, £1 billion of loans have been advanced under the scheme, supporting 12 housing associations with their development pipelines and helping deliver over 6,300 new homes. The current scheme still has around £5 billion of capacity left for providers.

In 2023 around £600m of new loans ranging from £15m to £200m were funded under the scheme. December 2023 saw the launch of a new £256.5 million, 10-year bond with an attractive spread of 55 basis points over gilts to give an interest rate of 4.818%. This followed the successful launch of a new 30-year bond in March 2023 with a rate of 4.809%. This gives borrowers looking to access funding under AHGS more options to meet their treasury requirements whilst taking advantage of the scheme’s competitive pricing. At the end of February 2024, the secondary trading spread levels for the 2033 and 2053 bonds were in the low 50 basis points and low 30 basis points over the relevant gilts respectively.

The expanded scheme should be more attractive to a wider range of housing associations, for example those that have material building and fire safety spend, which can now be supported under the scheme. It may also benefit housing associations that have smaller development pipelines and for whom the expansion in scope to allow for investment in existing assets may help reach a sufficient minimum loan size.

New structural features are designed to be attractive to borrowers, such as the option not to charge collateral against the portion of the loan used for existing asset investment, instead paying an asset cover fee of 10 basis points per annum on the portion of the overall loan amount not covered by collateral value.

The interest cover covenant under the scheme remains the same, based on EBITDA (earnings before interest, taxes, depreciation and amortization) at a minimum of 1.2 times.

The AHGS remains open for applications until April 2026, with further extension options, and you can read the scheme rules online.

The scheme is managed by ARA Venn, part of ESR Group, an investment manager focused on European residential real estate.

Please contact ahgs@ara-venn.com for any enquiries about loan applications.