Developing associations get ratings agency boost

Credit ratings agency Moodys has confirmed the rating of 78 major housing associations despite earlier this month downgrading the overall credit rating of the UK, in a move which will be seen as a vote of confidence in the face of a weakening housing market.

The news comes as increasing questions are being raised over the sector, given the decision by the biggest developing association, L&Q, to pause development because of a drop in sales activity, principally in London. Other associations, such as Notting Hill, have reported drops in surpluses and unsold stock.

Housing associations’ historically strong credit rating is vital to their ability to build new homes as it allows them to borrow money much more cheaply than private developers are able to.

Associations bolstered by Moodys decision include most of the biggest developers in the sector, such as Clarion, Great Places, L&Q, Optivo, Peabody and Places for People.

Moodys said it had reviewed the ratings of 78 associations, which it classifies as “sub sovereign” because they benefit from government-backed income in the shape of housing benefit. On November 8 it downgraded the outlook on the UK’s sovereign debt rating to negative from stable.

Moodys said it had reached the conclusion not to downgrade the associations because it found the weakening of the UK’s institutional strength was likely to have “a limited impact” on the sector.

It said: “There are no material changes planned to the legislative or policy framework for housing associations, and the regulatory framework remains stable.

“Housing associations have adjusted to lower levels of capital grant since 2010 and, in the past year, capital grants have increased in the form of multi-year strategic partnerships supporting long-term planning.

“Although a lower growth environment is credit negative, Moody’s expects the rated sector to remain resilient.”

While it said it had considered the impact of weakening house sales, it concluded this would have limited impact on housing associations’ financial stability because sales still account for less than 20% of revenue.