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Housing association bond activity to increase due to low rates, says Moody’s
UK housing associations will continue to raise funds through the bond markets in 2020 to capitalise on low rates, credit ratings agency Moody’s has predicted.
In a report published on Wednesday, Moody’s said housing associations are “likely to increase bond issuance given low rates” and that local authorities will increasingly look to banks and bonds to finance capital spending for infrastructure.
The report comes amid a flurry of housing association bond issues with increasingly attractive pricing since the coronavirus outbreak.
Moody’s said that housing association borrowing will temporarily halve to €4bn [£3.6bn] in 2020 as a result of “strong liquidity and delayed capital expenditure”. Bond issues and private placements will represent around 40% of new issuances, the agency said.
However, from 2021, Moody’s predicts that housing association borrowing will increase and remain sustained.
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The report also said the coronavirus pandemic will create an “unprecedented tax revenue shock” for local governments in five large European economies: UK, France, Germany, Spain and Italy.
The agency said it expects the overall revenue shortfall to reach €77bn [£69bn] for these countries, or 6% of aggregate revenues in 2020.
Moody’s said: “Cyclical revenues, such as VAT and personal income tax, will be hit the hardest, and rent, parking charges and transport income will also decline.
“Cost reductions and central government grants to fund extra costs will somewhat soften the impact on expenditures.”
The agency noted that in the UK a €3.6bn [£3.25bn] government funding package for local authorities to cover losses caused by COVID-19 will “nearly entirely offset lost revenue”, with net losses amounting to just 0.4% of operating revenues for 2020.
But earlier this week, the Local Government Association warned that councils face a £7.4bn funding gap as a result of the crisis.
Similar to housing associations, UK local authority borrowing will temporarily decrease to €8bn [£7.2bn] in 2020 and resume from 2021 onwards.
Moody’s predicts that the Public Works Loan Board (PWLB) – a government source of finance for capital projects – will continue to dominate lending at around 72%. However, the government’s decision to hike PWLB rates by 1% last year will shift some borrowing towards banks and bonds.
