Southern Housing’s credit rating falls to A- but outlook returns to stable

But it added: “Continuing high demand for social and affordable housing and ongoing cashflow from rented properties support Southern’s credit profile, despite the challenging economic environment.”

Metropolitan Thames Valley Housing (MTVH), Riverside and Notting Hill Genesis also saw their credit rating reduced to A- by Fitch in gradings in autumn last year. At the time, MTVH’s chief financial officer said the downgrade was “disappointing”.

For Southern, Fitch noted that the landlord’s new rating aligns it with these London-based social landlords – its “closest peers” – which are based in similar locations and face similar challenges.

It said: “These entities were created through mergers, own a significant number of units in the South East, with major fire safety costs due to the stock profile and have similar net debt.”

The agency rated Southern’s financial profile as BB, down from BBB, saying its performance has worsened recently because of sector challenges such as building safety costs, reinvestments to meet energy standards and contractor failure.

However, it pointed out that the association has decided to restrict new development, dispose of non-core stock and reinvest merger efficiencies so it can regain its financial strength in the medium term.

Fitch also downgraded Southern’s standalone credit profile from A to BBB+, which reflects its financial profile rating and stronger risk profile.

Tom Paul, chief financial officer at Southern Housing, said: “I’m grateful to Fitch for continuing to rate Southern Housing rigorously and independently.

“Last year, Fitch put our rating on a negative outlook and also downgraded a number of our peers from A to A-. I am, therefore, not surprised by their decision and don’t believe our investors will be, either.

“Our financial performance has deteriorated in line with sector challenges, though in their release Fitch rightly note our focus on regulated social housing activity, our balance sheet strength, our strong liquidity, and risk averse debt structure as credit positives.

“The A- (stable) rating we now have from Fitch is equivalent to the A3 rating we have from Moody’s.”

In 2023-24 Southern’s annual surplus plummeted by £37m due to rising costs and project delays, and the landlord decided to stop making commitments on new developments.

In May, unaudited accounts for the landlord showed its operating surplus had recovered by nearly 15% following higher rent and sales income, extra grant money for remediation and a drop in staff costs.