"If successful, the NHB could break a long-running funding logjam, particularly for SME developers and social housing providers. However, the real test will lie in delivery. Will the NHB’s terms be attractive enough to drive uptake by lenders and borrowers?"
- Gary Grigor - Devonshires
The UK Government has launched the National Housing Bank (NHB) – a wholly owned yet operationally independent subsidiary of Homes England – with an explicit mission: to unlock long-term, flexible capital and accelerate housebuilding and regeneration.
The NHB hopes to tackle some of the most persistent obstacles to the development of new social homes. The goal is clear: remove barriers to finance and stimulate investment. But will this new institution truly change the funding landscape for developers and social housing providers?
NHB Offering
Backed by £16 billion of new public investment plus £6 billion carried over from pre-existing schemes, the NHB is empowered with a financial toolkit of direct loans, equity investments, and guarantees designed to leverage an additional £53 billion in private funding. Critically, much of the new NHB-backed financing is expected to be aimed towards small and medium-sized entities.
A key aspect of the NHB’s provision will be government-backed guarantees for loans from private banks to residential developers. £5.5 billion contingent liability is allocated for lending alliances with private sector partners, to reduce lender risk exposure and encourage credit where risk appetite may previously have been limited. This could be a game-changer for small or newer entities that lack asset collateral or a proven track record.
Alongside this, £2.5 billion is allocated to direct, low-interest loans for social housing development, particularly targeting less established providers who face expensive borrowing or limited access to mainstream finance.
Support for smaller developers
Homes England already provides development loans to SME housebuilders, with the government announcing at the end of 2024 the continuation of a £3 billion housing support package. The NHB builds on this by promising new alliances with bank lenders to offer revolving credit facilities to SME developers.
Why does this make a difference? Cash flow is a key challenge for many small builders operating on narrow margins. A revolving credit structure could provide flexibility and ease cash flow pressures by making funds available for their upfront costs. By absorbing early-stage risk, the NHB’s support should also reduce the lender’s risk exposure, thus facilitating favourable borrowing terms.
Effect and implementation
If successful, the NHB could break a long-running funding logjam, particularly for SME developers and social housing providers. However, the real test will lie in delivery. Will the NHB’s terms be attractive enough to drive uptake by lenders and borrowers?
Market conditions – such as interest rates and lenders’ willingness to utilise NHB guarantees –will play a major role. If loan pricing mirrors existing market options or comes with restrictive conditions, the impact could be limited.
Potential investors will need to analyse how NHB-backed projects might affect pricing dynamics, returns and market value. The sector is optimistic but with the NHB’s initial phase focused on structuring its offer and enabling processes, the sector awaits sight of a detailed investment strategy.
Insight from existing programmes
Similar programmes offer useful insight. For instance, a guarantee from the National Wealth Fund (NWF) allows lenders to offer better-than-market funding terms for purpose-specific loans. In this way, over the past year the NWF has facilitated favourable lending terms from private sector lenders to social housing providers for decarbonisation retrofit works.
Lenders were quick to engage but borrower interest has been limited so far, possibly delayed by difficulties identifying appropriate projects or obligations around ring-fencing and impact reporting. However, deals are trickling through and further deals are anticipated as potential adopters prepare suitable schemes.
Alongside this, there has been moderate but impactful take-up of the Affordable Homes Guarantee Scheme (AHGS20), which raises funds through government-backed bonds and on-lends to housing associations for new-build affordable housing and, more recently, decarbonisation or housing decency works.
Between 2020 and 2024, 12 social housing providers accessed the scheme, and those borrowers positively report that AHGS20 funding has helped with the expansion of their development programmes. Between 2020 and 2024, 12 social housing providers had accessed the scheme. AHGS20 funding has helped those borrowers with the expansion of their development programmes, cumulatively assisting in the provision of 6,290 new homes to date.
Final word
Alongside grants under the Social and Affordable Homes Programme, the NHB has the potential to reshape capital flows and channel increased funding into the development of social homes. The challenge lies in ensuring that terms are attractive enough, and not prohibitive, while the money is directed where it will have an impact.
The NHB’s ability to turn policy into homes will hinge on ensuring its terms truly work for smaller developers and social housing providers. If these elements align, the NHB could be a key facilitator of the UK’s housing strategy.
