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Combined Authority ‘internal review’ into loans to private developers
A controversial decision by former Mayor James Palmer to agree huge loans to private developers is to be subject to “an initial internal review” by Cambridgeshire and Peterborough Combined Authority. (CAPCA)
The review will be sanctioned by the housing and communities committee of CAPCA on March 13.
“Now that the affordable housing programme is in the process of being wound down in its current form, it is appropriate to conduct a final review into one area of the activities of the housing team that has not yet been looked into,” says Steve Cox, interim executive director of place and connectivity.
He says, in a report to the committee, that “an initial internal review is planned to look into the governance and processes followed in agreeing and managing loan terms between the Combined Authority and private housing developers”.
As part of the Devolution Deal, CAPCA secured funding from Government to deliver an affordable housing programme that ended in March 2021.
In September 2018 the board divided the funding into two parts.
How £100m was split into two
£60m was allocated for traditional grant funding and £40m was to be used for the then mayor’s plan for a revolving fund to support the delivery of additional affordable housing.
The revolving fund initiative championed by then mayor James Palmer committed a total of £51.167m through five loans to development companies to fund delivery of 53 affordable units.
Former MoD housing Ely which East Cambs has brought back to life
Mr Cox said that in August 2020 CAPCA approved loan extensions and interest free periods “to reflect the detrimental impact upon delivery of projects caused by the Covid pandemic”.
The largest loan of £24.4m was made to East Cambs Trading Company Ltd (ECTC) to refurbish 92 former MOD homes in Ely for use as private homes and this initiative funded delivery of 15 shared ownership homes. ECTC is owned by East Cambridgeshire District Council.
The project was also funded, in part, through an additional loan of £1.5m by Cambridgeshire District Council.
Mr Cox says the balance of the CAPCA loan on 21st February was £5,908,378, a reduction of £563,975 since the report to the housing committee in January “so we are continuing to see sales and re-payments”.
Loan to Laragh Homes of £4.84m on the project at Alexander House, Forehill, Ely was fully repaid with interest on 20 June 2022.
But he said the project cash flow is behind forecast with six completions expected before 31 March 2023 leaving 12 homes unsold “so it is unlikely that the loan will be repaid from sales proceeds.
“ECTC have confirmed that arrangements are in place to utilise a facility arranged with East Cambridgeshire District Council to ensure the loan is repaid by 31 March 2023”.
Mr Cox says only if ECTC fails to repay the loan on time can there be direct intervention by CAPCA.
“Loans are repaid as a proportion of sale proceeds from each housing unit on completion of sale,” says Mr Cox.
“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.”
Laragh Homes loan
Mr Cox said the financial balance sheet shows an outstanding balance of £9.647m by Laragh Homes for 37 homes at Histon Road, Cambridge, 10 of which are deemed affordable.
“The project at Histon Mews, Cambridge is progressing,” he says. “The independent monitor suggests the project will now complete in July 2023 and the agreed redemption date of the loan facility is 7 May 2023.”
“Forecasts show that not enough units will be completed for sale by 7th May 2023 to fully repay the loan and interest by the due date,” says Mr Cox.
“In this scenario the penal rate of interest under the facility agreement will be applied and the Combined Authority will need to consider commencing an action against the borrower whilst the development is nearing completion.”
A loan of £4.84m to Laragh Homes for redevelopment to housing of Alexander House, Forehill, Ely was repaid with interest in June 2022.
A second loan of £5.78m issued to Laragh Homes for homes at Linton Road, Great Abington was repaid with interest in January 2022.
The fifth loan made by CAPCA was of £6.5m – to East Cambridgeshire Trading Company – for 54 homes (19 of them affordable) at West End Gardens, Haddenham was repaid with interest on 19 January 2023.
In January the housing and communities committee discussed whether CAPCA was going to be rigid about default dates and at what point would action be taken.
The director of housing and development explained that the loans would default on the date the loan was due for repayment.
He explained that the legal team had a process in place around giving notice and making the borrower aware that they were in default before the stage of going to court to take action.
He stated that officers took every action to ensure that the borrower did not default and if borrowers were aware that they were not likely to make the deadline that they made alternative provisions in advance to ensure that the loan could be repaid by other means.
Background
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.
CAPCA says that over the past few years, its internal auditors have conducted a number of reviews into specific areas of the housing directorate’s activities, including aspects of the affordable housing programme.
In 2019/20, a review looked at loans made to East Cambridgeshire Trading Company, a wholly owned subsidiary of Cambridgeshire District Council.
The primary aim was to “review the process for deciding whether to award the loans, and the activities that support that process”. This audit was subject to a follow up review in 2020/21.
In 2021/22, an internal audit advisory review was conducted “to ascertain the nature and level of support offered to Community Land Trusts, the approval in place for this support and the processes in place to monitor the Community Housing Team”.
In 2022/23, a draft report was issued following a review to “determine that grants awarded to developers between the period 2017 to 2022 were awarded without any conflict of interest and followed a transparent application process”.
