Thursday, 29 January 2015

Moody's cuts housing associations' credit ratings

Rating agency Moody’s has downgraded the credit ratings for almost all English housing associations, citing a ‘weaker regulatory framework’ among its reasons for the decision.

The agency, which rated 26 housing associations as of December last year, made the move less than 24 hours after UK sovereign debt lost its AAA rating.

While the loss of the top rating was a catalyst for a review of the sector’s credit worthiness, the one-notch downgrade has also come about because of ‘a reassessment of the potential provision of extraordinary support’ for housing associations.

A note sent to rated landlords this morning also referenced the continuing uncertainty over the future of Cosmopolitan Housing Group as a reason for downgrading issuers.

The note said the downgrade ‘largely reflects a somewhat weaker regulatory framework, particularly in light of an evolving situation concerning an HA (housing association) in financial distress’.

Moody’s will continue to monitor the situation and did not rule out further downgrades for the sector as the impact on balance sheets of welfare reform begins to be seen in the coming months.

It also said that ‘further weakening of the UK government’s credit profile’ could have a knock-on effect on the sector.

Last December, it warned that housing associations were at risk of downgrade in light of challenges they faced around welfare reform. This came after all issuers in the sector were placed on a ‘negative outlook’ earlier in the year.

Until the downgrade, Moody’s had given 11 housing associations its third-highest Aa2 rating. These included Affinity Sutton, London & Quadrant, Midland Heart and Sanctuary. A further 13 providers had the fourth best Aa3 rating, while Genesis Housing Association and B3 Living had an A1 rating – the fifth highest.

Two housing providers have kept their ratings - Genesis and Baa2-rated Assetttrust Housing Association - but both have had their ratings placed on review for downgrade.

One housing association chief executive, who did not wish to be named, said: ‘It is unclear how investors will react to this as perhaps they have already taken the perceived risks of landlords into account when investing.

‘The UK downgrade is the trigger for this, but the bigger concern is what Moody’s thinks in terms of regulatory weakness at the Homes and Communities Agency. This is a big concern as it shows there is a real worry that an association could go bust and that investors could lose money.

‘Some associations have been very risk averse and stuck to the knitting, but we are not all in the same position. Some, as you can see with Cosmopolitan, have been more adventurous. I’m sure we’ll now see a wider range of bond pricing for housing associations as a result.’

Readers' comments (26)

  • Chris

    So removing regulation will make borrowing more expensive.

    Thanks for that Grant Shapps

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  • NO surprises here.

    Universal Credit will see their rent go direct to the tenant and in many cases never be passed on to the landlord. This is taxpayers money that WILL be mis spent.

    Whichever politicians don't see the error of this decision before too long deserves to be removed immediately from office.

    Bloody fools...........

    The cost of paying the landlord directly will cost NOTHING but will save an awful lot of pain to landlords and tenants alike.

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  • Georgina Goldsmith

    Yes Eric Pickles no REAL regulatory FOR RSL

    Ok Government happy with your Excessive Rent increases about inflation and Excessive High Service Charges.

    Well your Select Committee do not appear to understand EU RIGHTS

    Why because you need more Residents whom
    Because no-one knows what someones wants that the people living on these estate/ward/development is like than people who live there round the clock, 7 days-a-week

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  • Man Withabacus

    The regulatory section of the HCA wants the sector to "stick to the knitting" - as very few are equipped to increase their risk profile.

    The Government (and the grant funding section of the HCA) wants the sector to diversify and generate surpluses to cross subsidise new delivery - as there is no more grant funding.

    These two risk approaches are incongruous.

    The answer to divide organisations into 'core' and 'casino' bits may seem sensible on first pass... however, the reason why the government thinks the sector can generate surpluses from higher risk activity is that historically the sector has used social housing 'core' assets to borrow at very low rates. (This is what Cosmopolitan was doing with its Student Housing to generate surpluses for reinvestment into general needs.)

    If the regulator segregates these "core" assets then these will be no subsidised borrowing to go to the 'casino' with.

    The risky activity would then need to be funded at commercial rates... and that will be the end of the surpluses.

    After all... what makes you think that a housing association can make private rental work when even the businesses that build the houses for cost cannot?

    It is true that to attract the best sources of funding the sector needs to reduce not grow its risk profile.

    The sector needs subsidy to provide social housing. But going to the bookies has never been a great way to pay the rent!

    Efficient management and sector consolidation is a much more risk averse mechanic to deliver annual surpluses and release historic investment for new housing.

    Unfortunately, I suspect this is not the last time we will hear the words..."an evolving situation concerning an HA (housing association) in financial distress".

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  • Georgina Goldsmith

    Happen to Threshold Housing Assocation with its Shared Ownership Property 'B.... Up" in stepped the Housing Corporation and gave it to a Mega Housing Association and the Residents still fighting with the appointed Housing Association now some 7 years later. These Housing Assocation build Development and all these mixed tenure cause a nightmare especially with Manangement Agents involved and we found fraud by the orginal Management Agents with the Maintenance/Sinking/Reserve Fund and guess what still waiting for our Mega Housing Assocition to call in the Police

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  • Does there really need to be so many different housing associations, all with senior management, offices and expensive overheads? Where are the economies of scale? Suggest the sector rationalises and quickly!

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  • the biggest problem with housing associations is in my opinion that too many of them have become very profitable businesses . separating.the lucrative parts to ltd companies while claiming charity status its a fact that planed maintenance that used to be planned by local authorities seems to have become far less important.i really do think that these HS should only ever get council housing for a period of time a bit like the old maintenance contracts.but all stock should remain in the over all control of all social housing

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  • Tenantplustwo: come clean now; are you John Prescott in disguise?

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  • MJA | 25/02/2013 6:16 pm

    Does there really need to be so many different housing associations, all with senior management, offices and expensive overheads? Where are the economies of scale? Suggest the sector rationalises and quickly!

    The answer, MJA, is 'yes', because large HAs are no guarantee of either efficiency or good customer service. Talk to tenants of most large and most small HAs and see who is happiest with the service they get. And talk to the staff, see how happy they are. My HA (800 properties) recently advertised an Income Officer post, and we attracted applications from several employees of small HAs that had been taken over by large national ones. They were thoroughly disillusioned by the cost cutting and corporate management by dictat, plus reorganisation of roles that left them struggling to cover ever-larger patches with no chance of providing customers with a decent service. And don't kid yourself that bigger means more efficient; in my experience, the larger teh organisation, the bigger the executive remuneration, the plusher the offices, the more spent on glossy PR and so on.

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  • well where is all the naming and shaming then you have
    only given half the story?

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