Its new report, Housing Associations — England: House price decline will have marginal credit impact on the sector, sets out a central forecast that flat or falling house prices will equate to a 3.2% or £66 million reduction in sales revenue in 2019, a fall which would not have a significant impact on the key financial metrics of HAs rated by Moody’s.

Edward Demetry, a Moody’s analyst and the report’s co-author, said: “Although housing associations are facing a drop in sales revenue over the next two years, the credit impact is likely to be marginal if sales volumes are realised.

“If house prices were to fall to levels experienced during the housing market downturn in 2009, the key financial metrics of Moody’s rated HAs would deteriorate, putting pressure on the credit profile of these entities.”

HAs rated by Moody’s whose operations are concentrated in London and the South East have the highest exposure to market sales, with an average of 24% of turnover sourced from sales in London and 13% in the South East, compared to an average of 8% in other regions in FY2017.

During the housing market downturn, house prices in London and the South East contracted by 15.4% and 17% in 2009, respectively. A downside scenario incorporating a similar decline would equate to an overall reduction of 16.5% in forecast sales revenue - GBP258 million - for rated HAs operating predominantly in these two regions in FY2019.

As HAs increase their exposure to market sales while the market slows down, a key credit differentiator will be their ability to mitigate the negative impact of revenue volatility sourced from market sales. In particular, Moody’s will assess the extent to which revenue sourced from more stable income generated from core social housing covers financing costs.

In the event of a market downturn, HAs have an advantage in being able to scale back or even halt housing sales activities, and can switch development tenure to minimise their exposure to the market. However, this change in direction would lead to a delay in their development programmes and a reduction in anticipated income, exposing HAs to increased credit risk.

The report notes that prices are just one housing market variable which could weaken revenue and credit profiles, and there are other variables that must be taken into account, such as cost inflation, project implementation and construction risk, and interest rate movements.