Moody’s warns on credit risks as landlords increase debt for decarbonisation

The report said: “Inflationary pressures will erode the real value of government funds, which already fall short of what is needed.”

It added: “Consequently, this will increase housing associations’ reliance on debt funding. Higher UK interest rates will make debt funding more costly.”

Moody’s said “most of the costs” would be offset by cuts to development programmes. However, it said landlords that kept “ambitious development plans” would face “growing credit pressure”.

Homes where tenants are deemed as fuel poor need to be retrofitted to EPC C by 2030, which Moody’s estimates will cover around 710,000 social homes in England.

But Moody’s said the “tight” deadline would weigh on associations’ credit quality as they accelerate spending, which “requires more borrowing in a high interest rate environment”.

Last week, prime minister Rishi Sunak announced the government was relaxing some of its targets to tackle climate change. However, the changes do not apply to social housing, according to Moody’s.

Between 97.6 and 100 per cent of the stock of the housing associations that Moody’s rates, which include Clarion, Peabody, L&Q and Sanctuary, needs to be retrofitted.

The report also warned that landlords with stock in rural locations face higher costs and credit risk, compared with urban homes.

Moody’s estimates it would cost 13 per cent more, on average, to bring a social home in a rural area up to EPC C than in a city.

Rural stock is more likely to be a semi-detached or detached house. In an urban location, homes are generally more energy efficient, smaller and easier to retrofit, the agency said.