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Housing associations on track to enjoy 30% turnover boost, says Moody’s
Major housing associations are set for a 30% revenue bounce over the next two years and rising surpluses as rent restrictions are lifted, according to Moody’s.
In a report published today, the ratings agency said the outlook for landlords was “stable” despite the current political and economic uncertainties.
Moody’s, which rates 39 associations, highlighted that landlords will benefit when a four-year annual rent reduction of 1% comes to an end next year. From April, providers will be able to raise rents by up to 1% above the Consumer Price Index (CPI), bringing an end to restrictions imposed by then-chancellor George Osborne in 2015.
The move will also help reverse falling operating margins, Moody’s said. It expects margins will rise to “nearly 30%” by the 2022 financial year, as social housing lettings become more profitable.
It comes after the agency affirmed the credit ratings of the 39 association it rates earlier this month. Moody’s is striking a more positive note on the sector than fellow agency Standard & Poor’s, which yesterday warned over possible downgrades amid Brexit uncertainty.
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Today’s report also noted landlords have been affected by higher spending on their stock, partly from checks and remediation work in the wake of the Grenfell Tower fire.
However, it said this financial pressure will ease in the 2021 financial year.
And despite the current fears over exposure to market sales amid a weakening housing market, the agency said it expects turnover to rise from this stream by 2021.
Market sales will then account for 25% of association’s overall revenue but Moody’s noted that “higher market sales turnover exposes housing associations to economic risks, including adverse movements in house price inflation”.
Aside from the risks, Moody’s said these factors, helped by “effective cost controls”, will result in higher surpluses and operating cashflows for providers.
The prediction will be welcomed by a string of associations, which have a reported falls in their annual surplus of late. Earlier this month, Waqar Ahmed, finance director at L&Q, said the sector was “facing one of the most challenging environments in recent history”.
Moody’s also flagged that there will be political pressure to build more houses, which will mean landlords borrowing more and higher capital costs. As a result it warned that combined debt is likely to reach £48bn by the 2021 financial year, up from £41bn in 2019. Capital expenditure as a percentage of revenue will also increase, the agency said.
However, Moody’s concluded: “Our 2020 outlook for UK housing associations is stable based on a return to inflation-linked rents, effective cost controls and proactive management of elevated economic risk.”
