Lloyds Banking Group is converting disused office buildings into social housing. The UK’s biggest mortgage provider will lay the foundations for a new housebuilding boom following Labour’s victory in the election.
The bank began reviewing its property portfolio in 2020 during the Covid Lockdown. It is now launching the program with an old data and office building in Pudsey in West Yorkshire.
Lloyds will rent 80 new homes at a rate that is about half of the normal rental price. Lloyds has said that it is evaluating other offices and datacentres it can do similar things with in the UK.
Lloyds also announced that it would expand its Citra Living private renting arm in order to become the UK’s first bank on the affordable housing market. Citra will purchase the homes, remain the landlord and take over the day-to-day management of the properties. The company was founded in 2021 as a way to diversify the income generated by traditional lending. The pilot program will begin in Cambridge, next month. Rentals for struggling households will be offered at 80% market rates.
This is part of an overall package of measures announced on Friday by Charlie Nunn. Nunn will host housing bosses, policymakers and housing experts for a social housing forum to be held in London, Monday. Nunn will also continue to call for the construction of 1m affordable and social homes.
Rachel Reeves has promised to build 1,5m new homes in the UK to combat the housing crisis within the next five-years. Nunn, who is cautiously optimistic that Labour will achieve more than what the Tory Party achieved during their 14 years of office, has yet to specify how many homes are going to be at affordable or social rates.
Nunn said to the Guardian that Labour’s commitment is more clear than the previous government. “We didn’t realize, during the past period, that some changes would be required to unlock the level ambition we believe is necessary for the UK to flourish going forward.”
Skeptics may question why a lender would sacrifice higher profits at a moment when the interest rate is expected to fall and reduce bank earnings.
Affordable homes can be a source of reliable income. There will always be a demand for affordable housing in the UK, as there is a chronic shortage and house prices are near record highs.
Rents that are affordable can help people save money for a deposit when they eventually want to buy a house. This could benefit Lloyds indirectly, as it owns Halifax and is the UK’s largest mortgage lender. Nunn stated that “when you’re at the affordable end, which is the lower end of private rentals, we believe this is a really important path to home ownership.”
Citra launched its first Rent-to-Buy scheme in the last year.
Nunn said that there was no plan to package and securitise these projects. This would require bundling rental contracts at affordable prices and selling slices to investors.
Lloyds could end up looking for co-investors – namely insurers and pension providers – who are also in search of reliable returns for retirees and savers. This could include using retirement savings from the Scottish Widows division of Lloyds.
All pension plans manage payouts for 30, 40, or 50 years. You can invest a portion of this money in a long-term asset, such as housing. Nunn explained that this is not securitising or packaging the money, but rather putting it as a foundation for a steady source of income for pensioners.
Lloyds has also set aside £200m in loans to help small housing providers that would otherwise have difficulty obtaining funding. Nunn acknowledged that there is a “low-return hurdle”, which means that Lloyds will make less money than usual on the loans. However, he said that this “meets our shareholders’ expectations”.
Nunn hopes that his forum on social housing, which is scheduled for less than two weeks following the general elections, will attract the attention of the Labour government.
This could lead to discussions with Nunn’s social housing initiative, which includes leaders from Homes England, Legal & General and the housebuilders Taylor Wimpey and Barratt Homes. Also included are representatives of the homelessness charity Crisis and local authorities and housing association.
Nunn stated, “I would like to be able to participate in the policy agenda as we have a group that has some really specific ideas.”
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