Rising cost of borrowing impacts cost-rental homes

Cost-rental homes

At the beginning of May 2022, the Housing Finance Agency (HFA) said its lending rates for Affordable Housing Bodies (AHBs), which develop cost-rental properties, were increasing to 2.5% for a 30-year fixed loan.

A Cabinet sub-committee on housing was told that the cost-rental model, which aims to provide tenancies for €1,200 a month on average, faces “significant viability challenges” as a result of an increase in lending rates.

The memo provided to the sub-committee said the agency’s rate was increasing from 1.5% to 2.5%, while the rate for approved developments which had not been drawn down was increasing from 1.5% to 1.9%. This means that, “A rule of thumb indicator would suggest that a 0.25% increase in HFA rates would result in an increase of €50 per month in rent per unit.”  

The monthly rent for the Government’s cost-rental housing programme may have to increase its tenancy target by €200 per month due to the rising cost of borrowing.

According to the memo, “This increase may present significant viability challenges for future cost rental proposals by AHBs.” And Ministers were also warned that record rates of inflation and supply chain problems remain a risk to project costings and delivery schedules.

Housing Minister Darragh O’Brien is aiming to have 572 cost-rental homes available by the end of the year. This is applicable to people with household incomes of less than €53,000 a year, basically people who are above the threshold for social housing but have difficulty affording private rented accommodation. These rent for cost-rental homes must be at least 25% below regular market rents in an area.

Barry O’Leary, HFA Chief, said increasing lending rates was necessary due to “high volatility in the bond markets”. His agency plans to land €6bn for housing developments over the coming years, but he has said the increased lending rates will not impact on the delivery of social and affordable homes.

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