Where next for social housing finance in 2026?

As we look forward to a new financial year, the social housing sector finds itself having weathered a prolonged period of economic and geo-political uncertainty.

Gilt prices have remained high, resulting in a slower than hoped for return to the capital markets. The increased cost of debt has shaped the sector’s funding strategies, with treasury teams prioritising flexibility and liquidity. This has resulted in the sector turning to short term revolving credit facilities as a key source of funding, but these products carry an inherent refinancing risk. So what are anticipated as being the key sources of social housing funding over the course of the next financial year?

Longer term debt

While five to seven year funding is plentiful from funders, many banks are looking to help borrowers minimise refinancing risk with longer term debt facilities. Facilities with terms of 10-15 years are being offered (often incorporating an in-built ability to re-price the margin). These allow RP borrowers to lock in attractive funding rates for a longer period.

It should, however, be noted that funders are increasingly seeking to offset the interest rate risk of offering longer term funding by requiring loan linked or stand-alone ISDA agreements pursuant to which borrowers can fix the rate of interest. These arrangements carry a risk of a margin call which needs to be carefully considered.

Institutional investment

With capital markets funding unlikely to return to the same levels as before, there is an excellent commercial opportunity for institutional investors to lend directly to RPs. Institutional investors such as pension and municipal funds are already long-term investors in the sector, by virtue of holding notes under private placements and bond issues.

The sector’s strong ESG credentials and ability to demonstrate measurable impact should appeal to many institutional investors, particularly in Europe. Direct investment by institutional investors would provide RPs with long-dated patient capital at little risk to the lender.

Off balance sheet funding

With financial covenants (especially interest cover) reaching stretching point for many RPs, there is a need for off-balance sheet funding. This can be achieved by joint ventures with other RPs/developers/local authorities or via equity funding. The sector has struggled previously to attract equity funders with sensible yield expectations that are willing to deploy patient capital. But with the sector’s profile increasing in visibility, new equity investors are circling the sector.

National Housing Bank

The National Housing Bank launched on 1 April 2026. A subsidiary of Homes England, the National Housing Bank will provide funding to RPs via a mix of debt finance, equity and guarantees, with the aim of deploying £16 billion in capital into the sector over the next decade.

Eligible criteria for funding is set out in the investment prospectus, with seven core debt products available (although more specific detail is scarce):

• SME accelerator loan: site-specific lending targeting SME developers.
• Revolving credit facility: providing support in conjunction with commercial lenders to target multi-site facilities and complementary land loans.
• Senior and mezzanine debt: this is an offering to mid-size developers that are seeking funding at a project level, with a particular focus on build to rent, later living, and brownfield regeneration.
• Corporate balance sheet: balance sheet lending both directly and alongside commercial lenders to help housebuilders to grow and support the acceleration of housing delivery.
• Lending alliances: platforms that will use debt from the National Housing Bank to leverage private sector lender and institutional capital, including providing debt finance to SME housebuilders.
• Infrastructure loan: provision of long-term loans (up to 15 years) to large housebuilders and master developers to meet upfront infrastructure needs ranging from roads to placemaking.
• Low interest loans for registered providers: deployment of loans below market interest rates to unlock capital investment in social and affordable homes.

While the swift return of capital markets funding is not expected, it is an exciting time for RPs who are looking for new financing or to re-structure existing financial arrangements.

Inflation and higher gilt rates may mean that those long-standing fixes that some RPs have in place, which were too expensive to touch previously, can now be refinanced without too much pain. Investor appetite remains strong and new funders and equity investors are expressing interest in the sector. With the National Housing Bank offering a variety of finance products, this is an opportune time for RPs to consider their long-term funding strategy with a view to putting in place a diversified funding portfolio.