Pol­icy dif­fer­ences to widen credit gap among U.K. hous­ing as­so­ci­a­tions

Financial Mirror (Cyprus) - - FRONT PAGE -

English hous­ing as­so­ci­a­tions’ credit strength could in­creas­ingly di­verge from their coun­ter­parts in Wales and Scot­land be­cause re­cent gov­ern­ment pol­icy changes have cre­ated a more chal­leng­ing busi­ness en­vi­ron­ment for the sec­tor in Eng­land, Moody’s Public Sec­tor Europe (MPSE) said in a re­port.

“The English pol­icy en­vi­ron­ment has abruptly de­vi­ated from the pol­icy stances taken by the Welsh Assem­bly and the Scot­tish Par­lia­ment,” said Roshana Arasarat­nam, au­thor of the re­port. “The shift in pol­icy di­rec­tion, par­tic­u­larly in re­la­tion to rent set­ting, will cre­ate a more chal­leng­ing busi­ness en­vi­ron­ment for English hous­ing as­so­ci­a­tions, com­pared to that in Wales or Scot­land.”

Gov­ern­ment pol­icy to­wards so­cial hous­ing providers is a key rat­ing driver be­cause it shapes the op­er­at­ing en­vi­ron­ment in which hous­ing as­so­ci­a­tions make their strate­gic de­ci­sions.

In July’s bud­get, the UK gov­ern­ment an­nounced a 1% an­nual re­duc­tion in English so­cial hous­ing rent for four years, re­vers­ing the pre­vi­ous 10-year for­mula which set rents an­nu­ally at the Con­sumer Price In­dex (CPI) mea­sure of in­fla­tion plus 1%.

Other UK gov­ern­ment poli­cies and an­nounce­ments, such as on­go­ing wel­fare re­forms, the ex­ten­sion of the “Right to Buy” scheme and pro­pos­als for higher earn­ing so­cial hous­ing ten­ants to pay mar­ket rent rates, have al­ready cre­ated a more chal­leng­ing en­vi­ron­ment for hous­ing as­so­ci­a­tions in Eng­land.

The bud­get an­nounce­ment high­lighted the dif­fer­ent pol­icy choices be­ing made lo­cally in Eng­land, Scot­land and Wales with re­gard to rent set­ting, cap­i­tal grants and wel­fare re­form. So­cial hous­ing providers’ bor­row­ing needs are shaped by the re­sponse of in­di­vid­ual as­so­ci­a­tions to dif­fer­ent pol­icy frame­works.

Debt lev­els have been in­creas­ing in all three re­gions, with de­clin­ing cap­i­tal grants and strong in­vestor de­mand for long-dated bonds fuelling the ac­cess­ing of cap­i­tal mar­kets. English hous­ing as­so­ci­a­tions are ex­pected to con­tinue ac­cess­ing the cap­i­tal mar­kets di­rectly, while Scot­tish and Welsh hous­ing providers are an­tic­i­pated to dis­play a more muted ap­petite for bond is­suance due to their lower fund­ing needs.

While re­gional reg­u­la­tory frame­works share sim­i­lar ob­jec­tives, the English reg­u­la­tor faces a more chal­leng­ing op­er­at­ing en­vi­ron­ment, Moody’s con­cluded.

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