March 20, 2012 / 2:12 PM / 5 years ago

TEXT-Fitch: UK's negative outlook has no impact on social housing

March 20 - The revision of the United Kingdom's Outlook to Negative from
Stable will have no immediate impact on the ratings of UK registered providers
(RP) of social housing. In Fitch's view RPs still benefit from strong government
support by way of public funding and regulatory oversight.	
	
Fitch applies a "bottom-up" rather than a "top-down" approach to social housing
ratings which means the ratings of RPs are not credit linked and do not
automatically move in line with any rating action on the UK sovereign.
Furthermore, a hypothetical one notch downgrade of the UK sovereign rating would
not affect the agency's view of potential support from the UK government.	
	
The standalone assessment incorporates the fact that over 70% of the turnover of
RPs comes from the government by way of housing benefits. In addition,
significant capital grants are received by RPs from the Homes and Communities
Agency (HCA), who in turn receives it from the government. Therefore, RPs with a
high level of turnover from social housing activities would tend to be rated
higher than those which have a high proportion of revenues from development
activities.	
	
In addition Fitch also applies a two notch upgrade to the standalone assessment
of the RP to take into account the strong regulatory environment and any
extraordinary support that the central government could provide to an entity or
the sector. Fitch views that RPs provide an essential function in the provision
of affordable housing and the UK government would wish to maintain confidence in
the sector and also in the ability of RPs to access long-term funding.	
	
Any significant weakening of the UK government's propensity to provide support,
which would result from more than a one notch downgrade of the UK sovereign
rating, could potentially negatively impact both the standalone assessment of
the RP and the two notch credit enhancement. In the latter case, Fitch may
decide to adjust the uplift to less than two notches implying deterioration in
the quality of the UK public finances and the government's ability to provide
support to the sector.	
	
While the 2011 Autumn Statement and the 2010 Spending Review may have, in the
long run, a negative influence on the level of public funding to the social
housing sector - in the form of spending cuts - Fitch considers that the recent
regulatory changes in the sector, including Tenant Services Authority being
abolished and merged with the HCA and the fact that the housing benefit will be
paid directly to the tenants rather than landlords have had a neutral effect on
the strength of the overall sector's regulation.	
	
Additional information is available at www.fitchratings.com	
	
Applicable Criteria and Related Research:	
Social Housing in England: A Strongly Government-Supported Sector	
Rating of Public Sector Entities - Outside the United States	
Tax-Supported Rating Criteria

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