Lloyds Banking Group will start converting its disused office sites into social housing, as the UK’s largest mortgage provider lays the groundwork for a fresh housebuilding boom after Labour’s election win.
The bank, which started reviewing its property portfolio during the Covid lockdown in 2020, is launching the programme with a decommissioned data and office space in Pudsey, West Yorkshire.
Lloyds will sell the site to a local housing group with the agreement that 80 new homes will then be rented at about half the usual rate. Lloyds said it was assessing other potential offices and datacentres in the UK that it could do something similar with.
Meanwhile, Lloyds announced it was also expanding its Citra Living private rental arm to become the first UK bank in the affordable housing market. Citra, which was launched in 2021 to diversify income from traditional lending, will buy the homes and remain the landlord, while local authorities take on everyday management. The pilot will start in Cambridge next month, with rentals offered to struggling households at 80% of market rates.
It is part of a wider package of measures announced by the chief executive, Charlie Nunn, as he prepares to host housing bosses and policymakers for an inaugural social housing forum in London on Monday, where he will continue calls to build 1m social and affordable homes.
The chancellor, Rachel Reeves, has pledged to build 1.5m new homes to address the UK’s housing crisis over the next five years. While Labour has not yet detailed how many of those homes will be offered social or affordable rates, Nunn said he was cautiously hopeful that the party would achieve more than the Tory party was able to during its 14 years in office.
“Labour’s commitment to it is clearer than the last government,” Nunn told the Guardian. “We obviously didn’t see, in the last period of time, some of the changes that would be needed to really unlock the level of the ambition that we think is needed for the UK to prosper going forward.”
Sceptics will question why a commercial lender would be willing to sacrifice larger profits, especially at a time when interest rates are expected to drop and eat into bank earnings.
One reason is that affordable homes are a reliable source of income. With UK households facing a chronic shortage of new homes and near-record house prices, there will be consistent demand for affordable housing.
Affordable rents can make it easier for people to save up a deposit to eventually buy a home. That could indirectly benefit Lloyds, which owns the Halifax brand and is the UK’s largest mortgage lender. “When you’re in the affordable space, [which is] the low end of the private rental space, we think that’s a really important pathway to home ownership,” Nunn said.
Citra also launched its first rent-to-buy scheme last year.
Nunn insisted there were no plans to package up and securitise the projects, which would involve bundling affordable rental contracts and selling off slices to investors on the open market.
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However, Lloyds may end up seeking co-investors, particularly insurers and pension providers, that are also on the hunt for reliable returns for savers and retirees. That could also involve deploying retirement savings from Lloyds’ Scottish Widows arm.
“All pension plans have 30- or 40-year or 50-year payouts that they’re managing. There is that opportunity to put a percentage of that money into a long-term investment, like housing. So that’s not packaging them up or securitising … that’s actually putting them as a bedrock of a stable source of returns for pensioners,” Nunn said.
Lloyds is also ring-fencing £200m worth of loans for small housing providers who would otherwise struggle to access funding. Nunn admitted there was a “low return hurdle”, meaning Lloyds is prepared to make less money on the loans than usual, but he insisted that it was “a return that does meet our shareholders expectations”.
Nunn is now hoping his social housing forum, scheduled less than two weeks after the general election, gains the attention of the new Labour government.
That could open the door to talks with Nunn’s social housing initiative group, which includes bosses from Homes England, Legal & General, the housebuilders Taylor Wimpey and Barratt Homes, the homelessness charity Crisis, as well as local authorities and housing associations.
“I’d like to get a chance to engage on the policy agenda because we now have a group of people who have got really specific ideas,” Nunn said.
