Decision details

To seek Individual Cabinet Member approval to enter into a loan agreement providing pre-development finance to the Sheffield Housing Company for Phase 5 of the new house building programme.

That the Individual Cabinet Member:

 Approves the next stage of agreed loan payments to SHC on the following terms:

Payment Schedule

Payment 1 - £756,000 in July 2018 or as soon as the loan agreement is in place.

Payment 2 - £924,000 in January 2019 subject to an approved Business Case and confirmation that development finance is available.

Interest Rate

5.75% above Bank of England base rate, to be repaid within 5 years of the date of land demise of the first site in Phase 5.

Providing a loan for pre-development costs for Phase 5 ensures that the sites are developed out and additional housing is built in line with the original vision for the local housing company. This will provide much needed quality housing in the identified areas.

Sheffield City Council (SCC) has provided previous pre-development loans for earlier phases and has existing land values due by way of Loan Notes from previous phases. Funding the continued building programme is seen as the best way to ensure that those monies owed are paid when due.

SCC will also benefit from receipt of the commercial return on the loan and as a shareholder will benefit from dividends declared by the Sheffield Housing Company as a result of any development profits.

Decline the request for the Phase 5 loan

Sheffield Housing Company (SHC) have confirmed that pre-development finance is not available from another source, as it has no registered interest in the land until drawdown is complete. Therefore, without the loan, no further work can proceed on the remaining sites in the SHC programme which may prejudice the future viability of SHC and consequently the Council’s capital receipt and returns on land investment may not be realised.

Approach Homes England for investment support

To sustain the programme the SHC could ask Homes England (HE) to increase its equity which may require surrendering part of the equity as a return for HE. This would require new loan agreements and HE may not be interested in taking up this opportunity. It would also require extensive renegotiation of the current legal agreements surrounding the SHC and may have procurement law implications.

Defer SHC payments of land receipts

The Council provides consent to SHC that they can cash flow the pre-development costs from previous phase receipts. This would require the Council to defer the payment of land receipts from previous phases and leave those repayments at risk.