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Associations’ coronavirus income hit to be offset by reduced operations, ratings agency says

Increased arrears and bad debts linked to rising unemployment from the coronavirus outbreak will be offset by savings from paused development projects and reductions in repair works, according to ratings agency Moody’s.

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Housing associations to ride out coronavirus disruption despite impacts on operational activity, ratings agency says #ukhousing

“We expect the Regulator of Social Housing to be flexible under current circumstances,” says Moody’s #ukhousing

Moody’s says paused developments and less repairs will help housing associations weather the COVID-19 storm #ukhousing #coronavirus

In an update published today, Moody’s said it expects the outbreak to have “material operational effects” on UK housing associations.

It added: “However, we expect the majority of housing associations to be able to mitigate these impacts due to their strengthened liquidity positions from reducing significant cash outflows by postponing development programmes; and cash savings on repairs and maintenance, which are now limited to essential works.

“As a result, we do not expect material credit impacts for most housing associations.”

Since the outbreak, a number of housing associations had started to move towards an emergency repairs-only model before the government stepped in with guidance to reinforce this approach.

The agency estimated that a 75% reduction in repairs and maintenance costs for rated associations in fiscal 2021 would absorb £1.1bn in arrears and bad debts resulting from the financial hardships experienced during the outbreak, or 14% of expected social housing letting income.

“While deferred maintenance will likely result in statutory non-compliance and repairs backlogs, we expect the Regulator of Social Housing to be flexible under current circumstances while maintaining appropriate oversight and undertaking additional monitoring of housing associations with higher financial risks,” the note said.

Moody’s predicted the outbreak will cause unemployment to rise to 6.5% by the end of 2020, which will in turn produce increase rental arrears and bad debts as newly unemployed tenants transition to receiving benefits.

Already the welfare safety net has felt the strain, with 950,000 people applying for Universal Credit in the past two weeks.


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But Moody’s noted that of rated associations, “a median of 38% of social housing letting income was paid through the benefits system in [2018/19] and is therefore currently not at risk”.

The agency also said there is likely to be an increase in demand for social housing as unemployment is expected to rise.

Moody’s said that the spread of the virus has seen housing associations pause development programmes and evaluate uncommitted schemes.

The update said: “This will reduce their forecast net capital expenditure in fiscal 2021, consequently freeing up liquidity that would otherwise have been allocated for delivering new units.

“Housing associations will be able to redirect these funds towards mitigating the adverse effects of coronavirus, which include lower forecast rental income from planned new homes, growing rent arrears as unemployment rises among tenants, and lower market sales due to reduced sales activity and a bearish housing market.”

Housing associations with a large stock of unsold properties will be able to mitigate the effects of impairments on income by changing the tenure of these units to rented homes or undertaking a bulk sale, but these approaches, according to Moody’s, will result in lower than expected cashflow.

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