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S&P warns 20 associations risk downgrades in no-deal Brexit
Standard & Poor’s (S&P) has warned that 20 housing associations remain at risk of being downgraded in the event of a no-deal Brexit, with landlords exposed to market sales the most “vulnerable”.
In a report published today analysing the risks of a no-deal Brexit, the agency said Brexit uncertainty had already meant lower house prices and sales, particularly in London.
“We see as particularly vulnerable the ratings on providers who increasingly depend on proceeds from market sales, or receive uplift for extraordinary support from their related government,” the agency said.
S&P, which rates 41 housing associations, said it had identified 11 landlords where it would lower credit ratings because of a possible “deterioration of their debt profile” as a no-deal would cause “economic contraction, especially in the real estate sector”.
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The report added: “We expect lower earnings to result in increasing funding needs and, as such, we forecast debt metrics would come under pressure.”
In the past year, S&P has lowered its ratings on six housing associations and given five others a negative outlook.
In July, L&Q and Housing 21 saw their credit ratings downgraded, while Clarion, Stonewater and Octavia Housing all had their outlooks downgraded to negative. The agency first warned in December about the threat of downgrades from a no-deal Brexit.
S&P noted: “We have started to observe significant shifts in the business plans of housing associations that are heavily exposed to outright sales. They have adapted their strategies following the market slowdown and in anticipation of a further contraction.”
Last month L&Q revealed it was pressing pause on new developments as it battled with the market downturn.
Another factor that could lead to downgrades is increasing unemployment, which could exacerbate arrears and lead to a “deterioration of economic fundamentals”, S&P added.
The agency said nine other associations face being downgraded if it was to lower its UK government sovereign rating because of Britain leaving the European Union without a deal. “The final rating on these housing associations would lose the corresponding rating uplift derived from our view of the likelihood of support,” the report said.
However, S&P acknowledged that associations were preparing for the scenario and could ultimately increase rents. “While our base case does not take into account proactive measures, we acknowledge that many housing associations have mitigation strategies in place that they can swiftly implement,” it said. “In most cases, they can delay maintenance and capital spending, and from 2020 would be able to raise rent fees.”
The agency said it was sticking however to its “base case” that the UK will leave the EU with a deal. But it added: “Nevertheless, the probability of a no-deal Brexit remains relatively high.”
