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S&P: rent settlement won’t change credit ratings
The new rent settlement will not boost the credit standings of UK housing associations, credit rating agency S&P has said.
In a report on the sector, the agency said that the government’s decision to guarantee rent increases for housing associations at Consumer Price Index plus 1% – a move widely welcomed by the sector – “will not materially improve [associations’] credit standing”.
S&P argued that because the current rent policy for rents to decrease by 1% each year until 2020 was still in place, associations would still have to find ways to respond to financial pressures.
Many associations, it noted, have been responding by expanding their development for market sale, which increases the risks they face. It also pointed out that grant funding remains below historic levels.
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The additional grant of £2bn announced by Theresa May at last year’s Conservative Party conference would, S&P said, be “unlikely to slow expansion toward building-for-sale”.
Notwithstanding this, the agency concluded that associations had been more resilient than expected in response to George Osborne’s rent reduction policy, with operating margins increasing by 1% in the financial year 2017.
Associations, according to S&P, had responded by focusing on higher-rent affordable housing. This meant that despite the rent cut, average rents rose by more than 3% in 2017.
Alongside its report on the rent settlement, S&P released judgements on some UK housing associations.
Genesis’ merger with Notting Hill Housing, which is in its final stages, was positive for its rating, with S&P giving it a ‘Watch Positive’, which suggests that it could move to a positive outlook.
According to S&P, this was because the merger “is mainly based on cost savings, in our view”.
Home Group saw its outlook fall from stable to negative due to increased activity in market-related tenures, leaving it at A/Negative.
And 3,000-home Colne Housing Society saw a more significant fall from A+/Negative to A/Stable. S&P said risk at the organisation from increased market activity was “exacerbated by its relatively small size, compared with its peers that are active in open market sales”.
Chelmer fell from A+/Stable to A+/Negative, “partly because of a projected increase in market tenures but mainly because of ongoing changes regarding its governance and management”.
