Housing associations 'set to manage' Universal Credit challenge despite significant risks - Moody's
Published by Jon Land for 24dash.com in Housing and also in Universal Credit
Moody's-rated housing associations 'set to manage' Universal Credit challenge despite significant risks
Universal Credit poses a significant but manageable risk to housing associations, according to an overview of the sector published by the ratings agency Moody's.
In its update 'English Housing Associations: Lingering Downside Risks Despite Positive 2012 Results', Moody's said the new benefits system - to be rolled out from October 2013 - had the potential to put pressure on Moody's-rated housing associations but they were set to manage the challenges, particularly given the positive financial results the sector recorded during 2012.
According to the Moody's report, while Universal Credit adds risks in terms of rent collection, this was manageable for rated housing associations, as tenants "are likely to continue to make payments in an orderly and timely fashion". The report also welcomed the Government's efforts to limit an accumulation of arrears.
However, it continued, in a more adverse scenario, structural loss of income from weak rent collection could exert downward pressure on ratings.
Moody's also noted that most housing associations have increased their sales and non-core commercial activities, to accommodate a reduction in capital grants from the UK government.
"This source of income is less stable than traditional social-housing letting and fluctuates with market conditions, adding uncertainty to projections. An inability to manage sales turnover and related cash flow, leading to higher debt levels, would be credit negative," the report states.
The Moody's report added that exposure to market volatility from floating-rate debt and hedging positions may strain cash flow in the future, depending on the robustness of business plans. Sudden increases in interest rates beyond levels assumed within the business plan would exert pressure on ratings, it noted.
Commenting on the operating margins of its rated associations, Moody's states: "The average operating margin of the housing associations rated by Moody’s rose to 27% of revenue in 2012 (2011: 25%), supported by a steady growth in social-housing letting given rental inflation, and in some cases rent convergence, and new builds coming on-line.
"Saffron Housing Trust reported the strongest operating margin at 43%, while AmicusHorizon reported the weakest at 17%. Variance across the rated peers was largely due to differences in cost controls, the legacy of expensive refurbishment programmes to achieve minimum quality standards, and more broadly the business mix (i.e. exposure to lower-margin support and care, and more volatile sales)."
Saffron Housing Trust Chair Michael Harrowven said: "Moody's positive view of Saffron today is a clear validation of our execution to deliver value for money throughout the business whilst driving embedded strength into our balance sheet.
"We have simultaneously focused the business on good governance and tight risk controls as being at the heart of all we do, as we push forward to continually improve performance, investing in our business to achieve Sector leading recognition."
Adam Ronaldson, Saffron's Chief Executive, added: "Financial strength has always been a priority at Saffron. It provides the bedrock to deliver our new homes, quality services and high tenant satisfaction."