Moody’s warns on rising rent arrears but says credit impact on HAs will be ‘minimal’
Housing associations’ rent arrears are expected to peak in the next financial year due to the fall-out from the pandemic, but the overall impact on landlords’ credit profiles will be “minimal”, according to Moody’s.
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In a new in-depth sector report, the ratings agency said rising unemployment is likely to mean arrears reaching between five to six per cent of income of the 41 associations it rates.
As a result, Moody’s said this is likely to mean lower income of £105m for associations at its peak in the next financial year – compared to pre-pandemic levels. However a spokesperson for the agency said the £105m was not a forecasted loss in revenue over the full 12 months and most lost income is expected to be recovered.
With uncertainty over the future of furlough scheme, which is due to end next month, the agency said it expects a 6.4 per cent jump in unemployment. The UK’s furlough scheme has already been extended three times.
“The income of social housing tenants is particularly vulnerable in this environment, given that labour-intensive sectors are likely to record the strongest job losses,” the report said.
In the UK a fifth of social housing tenants have housing costs that represent more than 40 per cent of their disposable income, it said.
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Moody’s also said that the £20 a week Universal Credit top-up had been “crucial in containing a rise in arrears” for social housing providers last year.
However, media reports have suggested that chancellor Rishi Sunak will announce in this week’s Budget that the top-up payment will be extended for another six months. It is due to finish at the end of this month.
Even so, Moody’s said: “We expect the guaranteed income from permanent benefit systems… will contain the rise in arrears.”
It added: “We also expect the majority of arrears to be recovered over the medium term, with a limited increase in bad debts.”
The agency also pointed out that social rents will rise in line with inflation over the next five years which will “boost social housing income and offset higher arrears”.
Moody’s also warned of possible lower capital grants.
But it added: “Significant cuts will be politically difficult to implement given that the pandemic is likely to increase already high demand for social housing.”
On operating margins, the agency said it expected them to remain “strong” at around 25% over the next two years, helped by landlords’ inflation-linked rents and new property being built.
However, Moody’s warned that building market rent properties exposed associations to the “cyclicality of the housing market and higher cash flow volatility”.
It added: “Lockdowns and social distancing restrictions have led to construction delays and, the coronavirus-driven economic recession will negatively impact house prices.
“We expect margins on market sales to fall in 2021, compared with pre-pandemic forecasts,” it concluded.
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