Government-backed loan fund known as the affordable homes scheme is getting a £3bn uplift, which is expected to deliver 20,000 new homes.

The expansion of the Affordable Homes Scheme, which provides low-cost loans to housing providers, will support thousands of new homes. For the first time, the scheme can also be used to upgrade existing properties, making them warm and decent for tenants.

Providers will be able to apply for loans to carry out vital building safety works, such as the removal of dangerous cladding.

Backed by the Department for Levelling Up, Housing and Communities, the now £6bn fund will help housing providers access low-cost loans so they can expand their business, build more affordable homes and upgrade their existing stock.

Housing Minister Lee Rowley said:  “We know getting cost-effective loans can be a stumbling block for many developers building more affordable homes or upgrading their existing stock, so it is of the quality tenants deserve.

“This new round opening today will not only improve the lives of those already living in homes, but help thousands of families benefit from new, high-quality, affordable housing.”

Launched in 2020, the scheme, delivered by ARA Venn, is already helping 12 providers to deliver 6,290 new homes, with thousands more to be built in the coming years.

Among the beneficiaries of the scheme is Watford Community Housing. They first accessed the scheme back in November 2021 and it helped them build 200 new homes, including the firm’s first modular development.

As part of a second funding application made in December, they are set to build a further 100 affordable homes.

Watford Community housing deputy chief executive, Paul Richmond, said: “We were delighted to work with ARA Venn for a second time under the current Affordable Homes Guarantee Scheme. The funding represents excellent value for the sector and offers best value for fixed rate debt for our organisation.

“The benefit of using the Affordable Homes Guarantee Scheme in terms of pricing over our 30-year plan is worth nearly 100 additional homes being delivered into our local community. This has significant commercial benefit to us but more importantly has a direct impact on the wider need to build more housing across the country.”

Richard Green, portfolio manager for AHGS20 and partner at ARA Venn, added:  “We are delighted that we will be able to provide low-cost loans to private registered providers across England to now facilitate investment in existing homes, in addition to new ones.

“We look forward to continuing and building on the success of the Affordable Homes Guarantee Scheme, that has already proved a key source of funding for the sector.

“This timely expansion of the scheme allows us to support the sector’s balancing of investment priorities between providing new homes and ensuring the quality and energy efficiency of existing homes.”

The government says it is making good progress and is on track to meet its manifesto commitment to build 1 million homes this Parliament and the target to deliver 300,000 homes a year remains.

This work is being supported by £10m investment to boost housing supply since the start of this Parliament. This is alongside the £11.5bn affordable homes programme, which will unlock £38bn in additional private investment.