HBFI set to charge builders a minimum of 5pc interest on development loans
HOUSE Building Finance Ireland (HBFI), the €750m development fund announced by Paschal Donohoe in last year’s budget, is set to charge builders at least 5pc on construction loans when it is established.
The legislation behind the new entity, which will operate under similar conditions to the National Asset Management Agency, was passed through the Dail earlier in the month. The Finance Minister said that the €750m fund will help deliver around 6,000 new homes over its lifespan.
“HBFI has been introduced to address a shortfall in the availability of this type of funding in the market,” a spokesman for the Department of Finance said.
“Traditional banks have significantly reduced their risk appetite in this area and other non-bank lenders tend to focus on larger sites or those in the major urban areas. The lack of access to debt funding has been identified as a considerable obstacle for many smaller and medium-sized builders and developers.”
The department said that the loans would be of particular benefit to companies that have viable residential sites but cannot secure finance to develop them.
“On the interest rates, these will be set by HBFI on a case-by-case basis however, indicative lending rates have been provided previously suggesting minimum lending rates of around at least 5pc to be applied for projects with an loan-to-cost ratio of less than 50pc, ranging up to around 8pc for projects at 80pc loan to cost,” the spokesman said.
The department stressed that each construction project will receive a different rate based on a number of criteria. Credit risk, quality of collateral, the creditworthiness of the borrower, and their track record in the delivery of residential projects in the past will all be taken into account when determining the interest for a project. The rates will also be benchmarked against market rates for similar projects.
The legislation outlines that HBFI will lend money for “residential development” provided it is on commercial terms. In its decision-making the new fund must also contribute to the economic and social development of the State as well as improve the country’s competitiveness.
Donohoe is set to appoint up to 11 people to the board of HBFI, while the National Treasury Management Agency is likely to provide staff to the new entity. It is understood that HBFI will be headquartered in the NTMA’s new premises on the northside of the Dublin Docklands.