Our housing correspondent, BARRATT HOLMES, on how the latest annual accounts from the council’s house building company show zero homes built but a rapidly growing pile of debt
When an individual homebuyer takes out a repayment mortgage, they are charged interest and each month pay the interest and a small amount of the loan.
Some buyers have interest-only mortgages, and so pay only the interest on the amount borrowed. The capital, the total amount loaned, remains outstanding until the property is sold. The Bank of England is very concerned about the long-term effect of interest-only mortgages on the banking system and the possibility that such the loans may not being repaid.
Which is all worth careful consideration in the context of how Croydon Council’s wholly owned house-building company, Brick by Brick, is going about its financial business, where more than £10million of public money has been provided in loans.
Brick by Brick’s 2016 accounts, the first since the company was established, showed borrowings: a £10,061,091 mortgage from the Croydon Council and 5 per cent interest that was due to be paid. Then, the company reported making a £1.09million loss.
The 2017 accounts have just been published.
Twelve months on, and no interest has been paid on Brick by Brick’s mortgage from Croydon Council. Now the Brick by Brick directors, all appointees of the council, have decided to “capitalise” the interest, adding the amount accumulated to the loan, making the sum outstanding even bigger. That’s about £500,000 in interest per year. In the meantime, they’ve made no repayments whatsoever.
There is nothing illegal about this change, but the question which needs to be answered, by the council leadership as well as the company’s directors is this: is such action prudent?
Accountants always say the overriding principle of annual accounts is always to take the prudent view.
There are multi-million-pound risks associated with the actions being taken by Brick by Brick.
Eventually, the loan and the ever-growing interest might exceed the value of Brick by Brick’s property assets, if they do not do so already.
This company’s activities have met much criticism for some of the schemes that they have put forward, imposing on private properties or building on public open spaces. It is supposed to be providing affordable housing.
Instead, all it seems to do is pay its directors. Last year that was £39,000 according to the latest financials; it is believed that these generous payments will have been made to the part-time external directors, Jayne McGivern and Jeremy Titchen, and hopefully not to council officials and directors Colm Lacey and Lisa Taylor.
Meanwhile, it has put at risk its ability to repay its lender, Croydon Council, while indulging in window dressing of its company accounts that fools no one.
And still the council’s housing waiting list grows. As yet, not a single unit of Brick by Brick’s accommodation has been produced in three years. The accounts say that they expect to begin their first sales later this year.
Whatever happened to good, old-fashioned council house-building, an activity which saw more than 150 units built between 2009 and 2014?
If, eventually, Brick by Brick does produce its first homes, it is looking very likely that it will need to sell them off at an inflated price to make enough money to start paying back the loan from the council.
Now how will that help to solve Croydon’s housing crisis?
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