Inside Housing – Information – Housing associations’ credit score rankings may ‘undergo’ on account of hole between rising prices and lease, warns S&P

A number of housing associations’ credit score rankings may “undergo” as they sort out the thorny problems with lease ranges and rising inflation, rankings company S&P has warned. 

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Image: Getty


Housing associations’ credit score rankings may “undergo” as they sort out the thorny problems with lease ranges and rising inflation, S&P has warned #UKhousing

In a brand new report, S&P stated the “widening hole” between lease ranges and value inflation within the present monetary 12 months poses “vital challenges” to social landlords. 

Evaluation by S&P confirmed that greater than 1 / 4 of the 43 associations it charges may see “very weak curiosity protection” if they’re unable to cowl value will increase by boosting revenues or cutting down prices.

It comes as housing associations take care of the rising monetary challenges of investing of their inventory to enhance housing circumstances, tackling constructing security and making properties vitality environment friendly. 

The huge majority of housing associations, based on unique Inside Housing analysis, elevated their rents by the utmost – 4.1% – in April. Nonetheless, S&P stated it forecast that the Shopper Value Index (CPI) measure of inflation will common 8.7% this 12 months, resulting in a adverse inflation hole of round 4.6%. 

Inflation is at the moment operating at a 40-year excessive of 9.4%, whereas the Financial institution of England yesterday forecast it may hit 13% in October because it raised rates of interest and warned of a recession this 12 months. 

“A persistently adverse inflation hole would structurally weaken social housing suppliers’ credit score standing and create an extended path to restoration,” S&P’s report stated.

Landlords are solely in a position to set their lease ranges primarily based on the CPI of the earlier September. Since 2020, when the lease cap was lifted, housing associations have been allowed to extend rents by as much as 1% above the speed of CPI inflation. 

Abril Canizares, affiliate director at S&P, stated: “Whereas we expect that CPI inflation will stay excessive in September 2022, it’s unsure whether or not the UK SHPs [social housing providers] will have the ability to enhance rents from April 2023 to a degree that offsets their value will increase.” 

Ms Canizares added that as the price of residing disaster will increase, lease affordability “may grow to be an actual concern” and check the “social function” of registered suppliers. 

On Thursday, the Financial institution of England warned that the UK will enter a recession later this 12 months. 

The report added: “Vital value of residing stress within the UK and SHPs’ social function may make it difficult for them to introduce a full lease enhance from April 2023 – one which leads to near double-digit

progress and fully offsets their value will increase.” 

The warning from S&P echoes that from fellow rankings company Moody’s, which stated in June that associations face “difficult choices” over lease will increase subsequent 12 months as hovering inflation and rising vitality payments weigh on tenants’ funds. 

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