Rent cap proposals could impact credit scores
1 January 2023
This article was first published on the Batchelor’s Solicitors website prior to its merger with Birketts.
A global risk assessment firm has warned that plans to cap social housing rents could have a significant negative impact on housing associations’ credit ratings.
Moody’s issued the credit warning after the Government confirmed it intends to go ahead with a rent cap in 2023, as part of its plans to stem the cost-of-living crisis amongst tenants.
However, in seeking to protect renters, the Government’s plans could have a serious knock-on effect, putting housing associations under financial pressure and negatively affecting their ability to access loans at preferential rates.
Although the Government has yet to confirm the exact amount by which rents will be capped, it is considering three options – 3%, 5% and 7% – with the middle amount believed to be most likely.
If the 5% cap goes ahead, by the Government’s own calculations, this would leave a £7billion shortfall for social housing landlords.
Housing associations with lower operating margins could experience significant difficulties, with Moody’s suggesting that tough decisions will need to be made.
In its report, the credit ratings agency said it expected to see less investment in both current housing stock and planned developments, particularly given the above inflation increase in construction costs in the past year.
According to Moody’s the social housing sector is unlikely to be able to make up the loss in rental cashflow solely by increasing its debt.
Following the proposed housing cap announcement, both the National Housing Federation and Local Government Association have called for additional central government financial support to be made available to safeguard the future of new social housing development and the maintenance of existing stock.
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The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2023.