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Charitable Bonds Investment Programme

On 17 March the Scottish Government announced the successful conclusion of the 2015-16 Charitable Bonds Investment Programme, and a further budget of up to £25m for 2016-17.

We invested in four charitable bonds in 2015-16, which saw Ayrshire Housing Association, Eildon Housing Association, Kingdom Housing Association, and Orkney Housing Association benefit from loan finance of £18.9m.  These bonds generated almost £6.8m of charitable donations that we will use for the provision of new social housing.

For the coming year, we intend to invest up to £25m in more charitable bonds.  These loans are available for five or ten years with the rate fixed for the whole of the term, giving RSLs certainty of their financial commitment. Interest will roll up and be payable only at the end of the loan. The loans will be unsecured with light covenants. There are no arrangement fees of any kind; the Scottish Government pays Allia for its services.

The interest rate for the loans will be set case-by-case, according to Allia’s credit assessments and prevailing market conditions. But for illustrative purposes, here are some figures to give you some idea of how the package might look:

 

Loan Interest rate / % - indicative for 10 yr loans Bond value (to nearest £K) Grant generated for social housing (to nearest £K) RSL repayment (to nearest £K)

 

 

£1.5m

 

3

1,995,000

495,812

2,015,455

3.5

2,095,000

594,963

2,115,950

4

2,198,000

698,261

2,219,980

 

 

£2.5m

3

3,327,000

826,644

3,360,270

3.5

3,492,000

991,700

3,526,920

4 7,328,000 2,327,960

7,401,280

 

 

£5m

3

6,653,000 1,653,039 6,719,530

3.5

6,983,000 1,983,116 7,052,830

4

7,328,000 2,327,960 7,401,280

 

 

£10m

3

13,306,000 3,306,077 13,439,060

3.5

13,966,000 3,966,232 14,105,660

4

14,656,000 4,655,921 14,802,560

The difference between the loan amount and the bond value is the charitable donation, which the Scottish Government will treat as additional grant for social housing. The discrepancy between the bond value and the repayment is due to HM Treasury rules – the Scottish Government has to make a profit from this type of loan, and 0.1% is the minimum allowed. 

The loans are are repaid in a single payment at the end of the bond term (between five and ten years). If you choose to take up this opportunity you would work with Allia on the terms of the loan, and supply the Scottish Government with details of your project/s (which should be in the SHIP or of strategic importance).

Loan finance can only be used for the construction of new affordable housing. Allia would be happy to answer any questions and talk you through the loan process. Contact them at ScottishHomes@Allia.org.uk.