Project funding sources
The most straightforward route for a CLT will be to secure its feasibility
and pre-development funding from the CLT Fund; and development finance from an
ethical bank which are described below.
There are however other options:
Local authorities who are committed to supporting CLTs have provided
- interest free pre-development costs
- grant support for legal and other costs
- grant for creating serviced self-build plots covering the land cost, services
and slab foundation
- development finance for site purchase and all development costs including the
build costs and fees with interest rolled up until completion
Not all local authorities are willing or able to help in this way but they
have the power to do so.
The council tax raised on second homes (“Second Homes Council Tax”) has in
some authorities been ring-fenced to promote affordable housing. In Devon and
Cornwall in particular, funds from this source have been used to provide CLTs
(and housing associations) with working capital, set-up costs and grants at a
similar level to grants from the HCA to make schemes affordable.
Parish councils have the power to raise funds from Public Works Loans Board
(PWLB) which can provide finance a low rates from long periods, typically at
4.5% for 40 years. Their ability to access such funds depends on their status
and they may have to meet Quality status. A parish precept can be raised as an
addition to council tax to repay the loan. One council in Devon for example has
raised £700,000 in this way for a combined community and enterprise centre
incorporating a new library.
Securing support from charitable trusts for affordable housing is difficult
simply because of the scale of the funds required. A grant of £50k is not
unusual to provide just one affordable home and charities with limited funds are
likely to want their support to be for experimentation or facilitation rather
than mainstream provision. 'However where the scheme is unusual e.g. trying out
a new approach to sustainable building or in an unusual location such as a
remote island community, charities may be interested in helping to innovate or
to solve a problem to which no other solution seems to be available."
The CLT Fund was
established to provide fledgling CLTs with access to both finance and expert
technical support. The fund is split into four elements to support CLTs at each
stage of their journey from vision to reality. These are:
- Feasibility study: consultancy support to help scope a community group’s
idea into a project to take forward (1-2 days consultancy).
- Technical assistance: consultancy on legal, financial, and professional
support required to progress a group’s project (5 days consultancy).
- Pre-development finance: support for organisations that have definite ideas
about their development but lack the finance to undergo the planning process and
associated preparation. The sum borrowed must be repaid plus 25% if the scheme
proceeds. If it fails to proceed, the loan can be written off.
- Development finance: assistance in funding the development cost if 100% of the
funding required cannot be secured from banks and others.
For more on the qualification criteria and terms and conditions of the Fund,
Your CLT will need a development loan to fund your development unless it is
being funded by the builder or developer on a turnkey contract. Ethical lenders
such as Charity Bank, Venturesome, and Triodos are sympathetic to providing
loans to organisations which week to provide wider social and environmental
benefits, including Community Land Trusts, but will require there to be security
equal to twice or one and a half times the amount lent. This means having access
to the open market value of the homes and of the terms of your Section 106
agreement will need to exclude a mortgage, tenure mix, and method of disposal.
Long term finance
Development finance is needed to build the scheme and will generally be
provided on the basis of proof that you have in place a viable plan to repay the
loan when the scheme reaches completion: from the sale of equity stakes; from
agreed grants; and by re-finance with a long term loan. The long term loan would
be repaid from rental income which can be from several sources: homes to rent,
any rent charged on the share of equity retained in the CLT’s ownership in a
shared equity scheme; income from a rent charge/ground rent; and any income from
workshops or other non-housing uses.
The income committed to loan repayment will in all cases be the net rent
after meeting the ongoing costs of management and maintenance. For homes to
rent, this includes the cost of insurance, takes account of void losses and
excludes sums set aside to meet cyclical and planned maintenance (see “from
Space to Place” section).
The income profile for the net rent will show it increasingly annually by
inflation as rents rise, or by inflation plus 0,5%-1% if rents can be forecast
to rise with wages or inflation + economic growth.
The sum that can be borrowed, and hence the viability of the scheme, will be
- if interest rates are low
- if the borrowing period is long
- if payments increase annually with inflation, keeping in step with
Funds can be borrowed at either fixed or variable rate. In 2010, funds have
been obtained by CLTs at 6.5% over 25 years with an expectation that the rate
will remain fixed unless economic circumstances become exceptional for example
with very high inflation. Funds have also been available at 2% over base rate
over 20 years subject to a floor of 3.5% which means a rate of less than 6.5% as
long as the base rate stays below 4.5%.
Funding over longer periods would be preferable but are not immediately
available. A way through this would be to borrow initially for a 10 year period
and then re-finance for a further 25 years at which time the existence of a 10
year track record will make it easier to secure an offer. The aim would be to
find a charitable or public source willing to lend at a low rate for a limited
period enabling the debt to be reduced and the rental stream to rise.
Public Works Loan Board loans via a parish or district council could be
available over 40 years but there are few precedents for loans being used to
lend to a CLT.
A loan profile where interest only is paid in year 1 and repayments rise with
inflation (see annex 1a attached) enables a positive cash flow to be maintained
from year 1. If the CLT has reserve funds, fixed repayments can repay the same
sum at less cost but the CLT will have to fund losses in the early years (annex
1b). One way round this is not to begin to set aside the planned maintenance
reserve until year 5, using the rising rent to do so.
Grant from Homes and Communities Agency
The Homes & Communities Agency have agreed to provide grant to community
housing projects by High Bickington CLT, Worth Matravers CLT, Buckland Newton
CLT and Holy Island Community Development Trust. These have been obtained
through application to the HCA’s National Affordable Housing Programme 2008 -
2011 (NAHP) (the successor arrangements have yet to be announced) and the CLTs
in all cases were required to complete the Pre-Qualification Questionnaire (PQQ)
used by non-registered bodies to secure an access code to the Investment
Management System (IMS). All have required some degree of partnership or support
from a registered social landlord but the extent and nature of the support has
varied between the four approvals and the two HCA Regions. A (rather long) form
of agreement for CLTs has been developed but modified with each subsequent
The Tenant Service Authority (TSA) is still developing its procedures and
Following these approvals, arrangements for “self-organised housing schemes”
are under review and new procedures are likely be announced by mid-2010.
The current policy framework requires community organisations seeking HCA
grant to be affiliated with an accredited housing provider such as a local
housing association or local authority. This partner will then stand as
guarantor for the scheme in the event that the CLT is unable to deliver the
project. They may also assist with management functions and design dependent on
the agreement between CLT and accredited partner. You will have a memorandum of
understanding between your trust and partnering agency detailing these
functions. Click here to
see more on working with a housing association or development partner.
The application for HCA grant will require the trust to measure space and
other standards of construction, including the level achieved under the Code for
Sustainable Homes and other issues such as location, to generate a set of
Housing Quality Indicators.
Your anticipated building quality as measured by percentage scores will then be
taken into account when bidding to the NAHP using the IMS.
Upon entering a grant agreement with the HCA, the CLT must be aware of the
obligations they are taking on and the nature of the agreement they will have to
sign. Legal advice is advisable: using a firm that is already familiar with the
agreement will save cost.
For a guide to accessing HCA grant written by David Brettell who assisted Holy
Island’s grant application,
please click here.
Alternative sources of funding
Funding for mixed developments – If your development is going to be
multi-purpose and for community benefit, you may consider applying to the
government’s Community Builders fund. Please see
their website. and our
CLTs for Other Assets
Share Issues – Another approach may be to start a Community Shares
initiative. Community shares are a form of community investment which seeks to
raise money from communities through the sale of shares or bonds to finance
organisations serving a beneficial community purpose.
The Community Shares factsheet defines it as “The sale, or offer for sale,
of more than £10,000 of shares or bonds to communities of at least twenty
people, to finance ventures serving a community purpose”. In addition to the
Community Shares website you should visit
Wessex Community Assets who can offers support and advice to organisations
seeking to raise community investment.
It is not the same as community initiatives raising £1 shares through a
membership Industrial & Provident Society; its focus is on raising investment
capital and therefore requires reasonably significant individual investment.
Investors into a Community Share project may receive interest or dividends on
the money they invest, and as such it ought to be noted that this would conflict
with any bid to achieve charitable status due to the potential for individual
gain as well as community benefit.