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Falling house prices would have ‘marginal’ impact on sector, says Moody’s
Tumbling house prices over the next two years would have only a marginal impact on housing associations despite the sector increasing its exposure to market sales, according to Moody’s.
In a report published today, the credit ratings agency predicted associations will be able to cope with an anticipated drop in sales revenues as the housing market stagnates.
Flat or falling house prices will result in a £66m (3.2%) reduction in sales revenue for the sector in 2019/20, Moody’s forecasts, but that would not cause it to change associations’ credit ratings.
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Housing associations in London and the South East, where exposure to market sales is highest, are expected to take the biggest hit in any house price downturn.
Landlords in the capital made 24% of turnover through sales on average in 2017/18, compared to 13% in the rest of the South East and an 8% national average.
A housing market collapse on a similar scale to the 2009 crash would cause associations in London and the South East to lose out on £258m (16.5%) of sales revenue forecast for 2019/20, the report warned.
But housing associations would be able to switch development tenure to mitigate the impact, at the risk of delaying build programmes and limiting income.
“Although housing associations are facing a drop in sales revenue over the next two years, the credit impact is likely to be marginal if sales volumes are realised,” said Edward Demetry, analyst at Moody’s and the report’s co-author.
“If house prices were to fall to levels experienced during the housing market downturn in 2009, the key financial metrics of Moody’s rated housing associations would deteriorate, putting pressure on the credit profile of these entities.”
When assessing associations’ ability to manage housing market risks, Moody’s said it will look particularly at the extent to which income from core social housing activity covers financing costs.
The report, titled Housing Associations – England: House price decline will have marginal credit impact on the sector, is available to Moody’s subscribers here.
