Moody’s warns over HAs with high exposure to housing market as downturn looms

The government is consulting on a new rent cap, with the options of three, five and seven per cent increases. Moody’s, alongside S&P, warned in September that a tighter cap will be “credit negative” for the sector.

Housing associations face these proposals while being hit by build cost inflation as the material price index for all new work rose by 24.1 per cent in July compared to same month last year, according to the Building Materials and Components Statistics.

Housing associations also face significant and rising costs to retrofit their existing social housing, Moody’s said.

However, it said that the sector does benefit from high liquidity, which partially mitigates the risk of lower operating cash flow, and that demand for social housing remains very high and social housing lettings will continue to provide stable and predictable cash flows.

Moody’s said that while most housing associations it rates have some exposure to the housing market, because of the nature of their business, it varies significantly across the 42 housing associations it rates. 

Moody’s said market sales account for zero to 41 per cent of turnover over the next two years of those housing associations it assesses.

The median exposure was 16 per cent of turnover in fiscal 2022 and was predicted to grow to 20 per cent by 2024.

Moody’s warnings of housing associations’ exposure to a market downturn comes after it claimed that the risk of a housing downturn in Europe has increased following a sharp economic slowdown and subsequent rapid interest rate rises in the continent.

“As mortgages become more expensive, housing demand will decline, likely leading to softening in house prices after several years of growth,” Moody’s said in the report.

“Despite any decline in house prices, affordability will be under pressure, with private households already suffering from diminishing savings stemming from the rising costs of living in an inflationary environment.

“Housing demand will also suffer from low consumer confidence with consumers’ risk aversion growing as the Russian-Ukrainian conflict continues to drive high economic uncertainty.”