Housing associations downgraded amid fears over development exposure

Ratings agency Moodys has downgraded 13 social landlords, including a raft of major developers, citing fears over their exposure to the weakening economy, market sales risk and large development programmes.

The credit ratings firm said it had reduced the baseline credit assessments for 12 associations, including Sovereign, Great Places, Guinness, L&Q, Paragon Asra, and Yorkshire Housing by one notch, and Liverpool-based Riverside Group, which has recently merged with One Housing, by two notches.

However, in just six of these associations – Alliance, Citizen, Riverside, Sovereign, Newlon and Poplar HARCA – did the agency downgrade the “issuer” overall in terms of its ability to honour financial obligations. It said the outlook on all associations was “negative”.

The downgrades by Moodys come after a series of high-profile downgrades of the financial viability rating of major associations by the social housing regulator, reflecting the worsening economic climate.

Moodys said the 13 associations had been downgraded because of their “high exposure and lower resilience to weakening economic conditions, including prolonged high inflation, capped social rent increases, a housing market downturn and higher interest rates”.

Moodys’ Baseline Credit Assessments assess associations’ standalone intrinsic strength, without having to call on any support from parent or related organisations or government, while Moodys’ “issuer rating” is its ultimate view on how likely an entity is to actually default on a loan.

This morning, the Bank of England increased interest rates from 3.5% to 4%, a 14 year high.

It said the UK is set to enter recession this year but this will be shorter than previously thought with output falling by 1% from peak to trough compared with a 3% drop it said in November.