Diversification will bring you crippling debts, RSLs warned

The drive by many English housing associations to diversify their businesses could lead to financial hardship and a crippling debt mountain, influential credit analyst Moody's has warned.

Its annual report into the English housing association sector said RSLs face a number of other challenges, including rent restructuring and low demand in certain "localised" areas.

Moody's senior associate Benjamin Clay, one of the report's authors, said: "[Our report] is a comment on the focus of housing association business. Its strengths [include] stable cash flow, but when you move into PFI and market renting, the degree of volatility is markedly higher. Some associations have got into trouble with PFI projects and as a result their core business has suffered."

Clay said mounting levels of debt in the sector were "a worry" for its future viability and that caution needed to be exercised in taking out further loans.

Some associations have got into trouble with PFI

Benjamin Clay, Moody’s

The report said a continuation of the move by many associations into nursing care, student housing and market rentals would have a "damaging effect on the finances and credit profile of the RSL as a whole". Further problems from diversifying could emerge if "management lacks sufficient expertise".

But Janne Thomsen, senior vice president and co-author of the report, said the overall conclusion was that the housing association sector was stable and represented a good investment risk.