In a bid to ensure continuity of housing supply through the crisis, the Irish government yesterday announced a new suite of lending products through House Building Finance Ireland (HBFI), the state lender.
Goodbody Stockbrokers say it is a measure of the importance of this sector that it is singled out for specific funding, but it also signifies the concerns that tightening credit conditions will significantly hamper the sector as it begins reopening next week.
The measures can be divided into four main components:
(1) A new “Momentum Fund” that is specifically designed for large developments in large locations to ensure that these sites are not left incomplete due to funding issues with banks.
(2) The upper limit for loans is increased from €35m to €75m, with margins and fees similar to the main banks.
(3) Smaller developments (<10 units) will now be eligible for funding
(4) Apartment developments up to €75m will also be eligible.
HBFI was originally set up to fill a perceived funding gap in the market for smaller builders but was not designed to compete with banks. With rates being moved down to lower levels and the eligible pool of borrowers being widened, Goodbody say one could argue that HBFI is now in competition with the banks.
However, Goodbody say it is clearly a recognition that the government is concerned that funding issues will curtail a vitally important industry as it did in the GFC.
According to Goodbody Stockbrokers, "Given the economic slowdown and the likely impact on the housing market, HBFI must be keenly aware of the increased credit risks in the sector. These risks must be managed carefully to minimise the risks to the state and ensure that building firms that are inefficient and unviable are not kept open unnecessarily."