A bunch of housing associations’ credit score scores might “endure” as they sort out the thorny problems with lease ranges and rising inflation, scores company S&P has warned.
In a brand new report, S&P mentioned the “widening hole” between lease ranges and value inflation within the present monetary yr poses “important challenges” to social landlords.
Evaluation by S&P confirmed that greater than 1 / 4 of the 43 associations it charges might see “very weak curiosity protection” if they’re unable to cowl price will increase by boosting revenues or cutting down prices.
It comes as housing associations cope with the rising monetary challenges of investing of their inventory to enhance housing situations, tackling constructing security and making houses power environment friendly.
The huge majority of housing associations, in line with unique Inside Housing analysis, elevated their rents by the utmost – 4.1% – in April. Nevertheless, S&P mentioned it forecast that the Shopper Worth Index (CPI) measure of inflation will common 8.7% this yr, resulting in a detrimental inflation hole of round 4.6%.
Inflation is presently operating at a 40-year excessive of 9.4%, whereas the Financial institution of England yesterday forecast it might hit 13% in October because it raised rates of interest and warned of a recession this yr.
“A persistently detrimental inflation hole would structurally weaken social housing suppliers’ credit score standing and create an extended path to restoration,” S&P’s report mentioned.
Landlords are solely in a position to set their lease ranges based mostly 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, mentioned: “Whereas we predict 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 price will increase.”
Ms Canizares added that as the price of residing disaster will increase, lease affordability “might turn into an actual concern” and take a look at the “social objective” of registered suppliers.
The report added: “Important price of residing stress within the UK and SHPs’ social objective might make it difficult for them to introduce a full lease enhance from April 2023 – one which ends in near double-digit
development and fully offsets their price will increase.”
The warning from S&P echoes that from fellow scores company Moody’s, which mentioned in June that associations face “difficult choices” over lease will increase subsequent yr as hovering inflation and rising power payments weigh on tenants’ funds.
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