Housing Associations - United Kingdom 2021 Outlook found that high demand for social housing and inflation-linked social rent increases will support turnover growth, strong operating cash flows and interest coverage. However, coronavirus-driven unemployment may drive higher arrears and bad debts.

At the same time, HAs with higher income from market sales are more exposed to a housing market downturn, which would lead to lower operating cash flows, surpluses and potential impairments.

The report has also said that although capital spending on new and existing homes has now resumed, delays as a result of lockdowns will lead to slower debt growth, supporting stable debt metrics.

It added that capital spending delays, conservative treasury policies and favourable market conditions will support continued high liquidity. At the same time, demand for social housing debt remains strong and interest rates are at historic lows.

Moody’s also anticipates a stable and supportive policy environment at multi-year funding agreements for social rent increases and capital grants will enable HAs to create long-term plans. Above-inflation social rent increases will support strong operating cash flows.

The report also predicts that debt will rise to fund the construction of new homes, albeit at a slower pace than pre-pandemic forecasts.

Borrowing by rated HAs will continue to rise, reaching £46 billion by fiscal 2022, up from £41bn in fiscal 2020. Lockdowns to curb the spread of the coronavirus resulted in delays to construction as well as repairs and maintenance spending. They subsequently led to reduced funding requirements compared to pre-pandemic forecasts.

Moody’s added that although capital spending and construction have resumed, the lockdown-driven delays will result in a lower pace of debt growth compared to pre-pandemic forecasts.

However, Moody’s anticipates that despite an increase in debt, gearing (debt to assets ratio) will remain broadly stable, at nearly 50% over the next two years.

Moody’s said it expects funding market conditions to remain favourable, with strong access to capital markets and bank lending, as well as historically low-interest rates.