For housing associations raising new debt, one of the key structural decisions is whether borrowing should be secured against housing assets or raised on an unsecured basis.
Secured borrowing has traditionally dominated the sector. The reason is simple: giving a lender security over housing assets reduces its credit risk and will usually result in a lower interest margin. But the cheapest headline rate does not always mean the cheapest or most flexible funding overall.
Secured borrowing: lower rate, greater complexity
The main advantage of secured borrowing is pricing. For large, long-term facilities, even a relatively small reduction in margin can produce significant savings over the life of the loan.
It is also a familiar structure for lenders, housing associations and institutional investors, particularly for bank loans, private placements and aggregator funding. The trade-off is that security comes with additional cost and administration.
Putting assets into charge can involve higher legal and professional costs than an equivalent unsecured facility. These security charging costs can include borrower and lender legal fees, title due diligence, property valuations, searches, registration costs, security trustee fees and the internal resource required to assemble an acceptable security pool.
Those costs do not necessarily end once the facility is signed. During the life of the borrowing, properties may need to be released from charge, substituted or revalued. A housing association wishing to sell, redevelop or transfer a charged property may need lender consent and replacement security, creating further legal, valuation and administrative costs.
For a large, long-dated facility these costs may be relatively small compared with the interest saving. For a smaller or shorter-term borrowing requirement, they can materially reduce the benefit.
Unsecured borrowing: flexibility and speed
The clearest advantage of unsecured borrowing is flexibility. There is no requirement to identify and charge a pool of properties, meaning assets remain available for future borrowing, disposal or redevelopment. This can be particularly valuable for associations with active development programmes or limited unencumbered stock. Execution can also be quicker.
Secured borrowing often requires coordination between treasury teams, lawyers, valuers, property teams and lenders before funds can be drawn. Complicated titles or security requirements can extend that process significantly.
Unsecured borrowing removes much of this work. Once credit approval, documentation and covenants are agreed, there are generally fewer conditions to satisfy before drawdown.
Diversifying the funding base
Unsecured debt can also broaden the range of funding available. A housing association that relies almost entirely on secured bank debt or secured capital market funding can become constrained by its available security, even where its underlying financial position remains strong.
Adding unsecured facilities creates another route to market and reduces reliance on both individual lenders and charged assets.
Diversification should therefore be considered across more than just the number of lenders. A well-diversified funding strategy can include different maturities, structures, markets and security arrangements.
One potential route is to source unsecured funding directly from the local authority market. Arlingclose has developed a syndicated unsecured revolving credit facility, funded by participating local authority clients. This brings together a group of public sector lenders within a single facility, giving the housing association access to a committed pool of unsecured funding while diversifying away from traditional bank and capital market sources.
The structure also offers practical benefits beyond diversification. A revolving facility provides flexibility over when funding is drawn and repaid, while the syndicated approach would avoid dependence on a single lender and could allow the facility to be scaled across a number of participating authorities. For housing associations, this creates the potential for an additional source of committed liquidity without the security charging costs, asset encumbrance and ongoing security administration associated with secured borrowing.
For the housing association, the value is another funding channel altogether, with different characteristics from bank debt, bond issuance or traditional secured private placements epitomised by the lower non-utilisation fees.
Security limits
Housing associations are already carrying substantial levels of debt, much of it raised on a secured basis. Across English private registered providers, drawn debt exceeded £100bn for the first time in 2024, and the latest business plans now envisage a further £54.7bn of borrowing over the five years from 2026.
For some providers, the constraint on raising further secured borrowing is therefore becoming less about access to lenders and more about the availability of suitable unencumbered assets and sufficient covenant headroom. Properties may already be charged to existing facilities, while development, disposals and investment in existing stock can place further pressure on asset cover and financial covenants.
The Regulator has also highlighted that the largest providers generally have tighter financial positions, while interest cover remains a key covenant across the sector. In that environment, unsecured borrowing can become increasingly attractive. It allows an association to raise additional finance without allocating further property security, preserving remaining unencumbered assets for future secured borrowing and potentially providing an additional route to funding where security capacity is becoming constrained.
Arlingclose has arranged £450m of local authority funding for housing associations, with facilities ranging from less than £1m to transactions of £50m and above. The funding has typically been provided on an unsecured basis through fixed-term loans or revolving credit facilities, including a £73m RCF and £150m across four further facilities.
The approach uses Arlingclose's local authority client base to provide housing associations with an additional source of flexible medium-term funding, while reducing reliance on traditional bank debt and preserving property security for future long-term borrowing. Non-utilisation fees can also be highly competitive, around 30bps, helping to reduce the cost of maintaining committed but undrawn liquidity.
Please get in touch with sjones@arlingclose.com to discuss how we can help with funding solutions.
