Special Report
£14m outstanding from Palmer’s CAPCA ‘revolving fund’ loans scheme
A third of the £40m allocated by the Cambridgeshire and Peterborough Combined Authority (CAPCA) to create a ‘revolving fund’ for developers to provide affordable housing remains outstanding.
CAPCA housing director Roger Thompson says there is an outstanding balance of £13,912,932 in total from three of the loans that were “not yet fully re-paid as of the 19th of December 2022”.
Mr Thompson explained that as part of the Devolution Deal, the Combined Authority secured funding from Government to deliver an affordable housing programme that ended in March 2021.
The largest loan ‘revolving fund’ loan was of £24.4m and made to East Cambridgeshire District Council’s trading arm, East Cambs Trading Company Ltd (ECTC) to refurbish 92 former MOD homes in Ely for use as private homes; the loan terms funded delivery of 15 affordable units.
The Combined Authority’s housing strategy – approved by the board in September 2018- divided the funding into two parts.
£60m was allocated for traditional grant funding and £40m was to be used for the then Mayor James Palmer’s plan for a revolving fund to support the delivery of additional affordable housing.
The revolving fund initiative committed £51.167m through five loans to development companies (Laragh and East Cambs Council’s trading arm) to fund delivery of 53 affordable units.
In August 2020, the Combined Authority board approved loan extensions and interest free periods “to reflect the detrimental impact upon delivery of projects caused by the Covid pandemic,” said Mr Thompson.
In March 2021 Government conditionally agreed to a new affordable housing programme for 2021-2022 on the basis that all loan repayments were allocated to support the delivery of additional affordable housing through grant funding.
ECTC also borrowed £6.5m for West End Gardens, Haddenham, where 54 homes are being built, of which 19 will be affordable.
The largest loan ‘revolving fund’ loan was of £24.4m and made to East Cambridgeshire District Council’s trading arm, East Cambs Trading Company Ltd (ECTC) to refurbish 92 former MOD homes in Ely for use as private homes; the loan terms funded delivery of 15 affordable units.
As of 19th December 2022, the balance on the loan was £6.365m.
“At the time of the previous report to committee it was £8.774m so we are continuing to see steady sales and re-payments,” said Mr Thompson.
“Since the last update to housing committee the balance of the MOD Ely loan has been reduced significantly due to continued repayments of £2.469m since October 2022
“The most recent monitoring report advises that the cash flow is behind forecast, and the repayment of the loan by March 2023 will depend on how quickly the properties can be sold.
“ECTC have advised officers that they have access to a facility in the event of any shortfall in sales to repay the loan by end March 2023.”
Mr Thompson said that officers would “continue to monitor the situation and provide update reports to housing committee”.
He said that ECTC has until 31 March 2023 to repay the loan and no direct intervention can be taken by the Combined Authority unless default occurs on 31 March 2023.
ECTC also borrowed £6.5m for West End Gardens, Haddenham, where 54 homes are being built, of which 19 will be affordable.
“The project monitoring report for West End Gardens forecasts repayment of the loan before the 31st of March 2023 deadline,” says Mr Thompson.
“All except one plot has been reserved at prices above originally anticipated values and the development is expected to have a positive financial outturn for the developer.
Linton Road, Abington, provided 15 homes, seven of which were classified as affordable.
“We are aware that there are two further sales anticipated for the 3rd week of January 2023 and these should complete the repayment of the loan and interest in full.”
He said the loan to Laragh Homes of £4.84m on the project at Alexander House, Forehill, Ely was fully repaid with interest on 20 June 2022.
Laragh built 25 flats from the redevelopment of Alexander House, Forehill, Ely, which provided four affordable flats.
Likewise, the loan to Laragh Homes of £5.78m on the project at Linton Rd, Great Abington was fully re-paid with interest in January 2022.
Linton Road provided 15 homes, seven of which were classified as affordable.
At Histon Mews, Cambridge., Laragh Homes is building 27 homes, of which 10 will be affordable. They have borrowed £9.647m from CAPCA.
Mr Thompson says building work “is progressing” and says an independent monitor suggests the project will complete in phases between March/May 23.
The agreed redemption date of the loan facility is 7 May 2023.
He said: “We understand that units are reserved ‘off plan’ ahead of construction completion and this is a positive indicator for the success of future sales and the repayment of the loan.
At Histon Mews, Cambridge, Laragh Homes is building 27 homes, of which 10 will be affordable. They have borrowed £9.647m from CAPCA.
“However there appears to be an increasing risk of a construction delay and that not enough units may be completed for sale by 7th May 2023 to fully repay the loan and interest by the due date.”
He said that as happened previously with the loan at Alexander House, “the penal rate of interest under the facility agreement will be applied.
“CAPCA will need to consider if it is appropriate at that time to commence an action against the borrower, whilst the development is being/close to completion”.
Mr Thompson told the committee that loans are repaid as a proportion of sale proceeds from each housing unit on completion of sale.
“The Combined Authority retains an element of control through its requirement to approve each sale prior to completion, and each development is monitored by officers,” he said.
Mr Thompson added: “Recent market data suggests a reduction in sales activity, mortgage approvals and some downward pressure in values.
“At this time, this is not significant enough to suggest any significant change to the risk profile on the repayment of the outstanding loans.”
FACT FILE
ECTC was set up in March 2016 by East Cambridgeshire District Council as an in-house entity.
The council says it property and community housing division was set up to perform contracts awarded by the council “to develop high-quality and design-led housing of all tenures, generating profit for the council”.
However, a later decision was taken to “re-focus ECTC and allow ECTC to freely trade as a commercial entity”.
It meant that ECTC retained the remainder of the contracts already awarded by the council “whilst continuing to pursue commercial opportunities in the future”.
The council said it was ECTC’s view “that it is no longer an in-house entity of the council and is no longer a ‘body governed by public law’ for the purposes of the Public Contracts Regulations 2015.
“ECTC will no longer be reliant on contracts awarded to it by the council and will be subject to the vagaries of the market and suffer its own losses, operating in a competitive environment.
“ECTC will need to compete on the same terms as the private sector to win work and is therefore operating in a competitive environment.
“ECTC is of the view that ECTC’s activity has sufficient industrial or commercial character and does not meet needs in the general interest.
“ECTC’s activity will be monitored on an ongoing basis to ensure that it does not breach the procurement rules.”
