Moody’s: demand and government support for UK social housing expected to remain strong

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LOWER market sales income poses the biggest economic risk to UK housing associations during the coronavirus pandemic and its aftermath, Moody’s Public Sector Europe said in a recent report.

However, reduced operating and capital spending will offset the cash flow impact of the housing market downturn.

While rated housing associations’ rental arrears and service care costs are expected to rise, Moody’s stress testing found that the impact is likely to be less material than reduced market sales income.

Edward Demetry, a Moody’s Analyst and the report’s author, commented: “Although the UK housing market reopened in May, the constrained conditions for new sales and expected weaker demand is likely to reduce residential sales volumes for the rest of the year, which in turn would likely cut house prices.

“However, the housing association sector’s inherent strengths, strong liquidity and spending flexibility will maintain overall credit quality in fiscal 2021.”

According to Moody’s scenario testing, reductions in operating and capital spending will offset lower market sales income and potential increases in impairment costs in fiscal year 2021.

Even in a severe downside scenario, Moody’s research found that stressed housing associations have sufficient liquidity in place.

Mr Demetry added: “We expect demand and government support for social housing to remain strong.

“Housing associations continue to secure funding as investor demand has remained robust due to the sector’s underlying strengths.

“They can also adapt their business plans to mitigate economic risk.”