Ratings on some mutuals crash down three notches following concern over house prices
Nine building societies have been downgraded by Moody's rating agency due to concerns about their exposure to falling house prices and specialist loans.
The agency said it had downgraded them after stress testing how mutuals would perform against a 40% or a 60% fall in houses prices from the height of the housing boom.
Some of the societies were downgraded by three notches, making it much harder for them to raise or roll over funding in the present market. The societies may find it especially difficult to attract deposits from organisations that only invest in financial institutions with A-grade credit ratings, such as councils and smaller pension funds.
Marjan Riggi of Moody's said the agency had increasing concerns about house price falls: “What's different is the loss expectation is higher than it was three or four months ago, looking at the economic forecasts on housing.
“Last year we were looking at mortgage lenders and stress-testing a 25% fall in house prices. In the past three or four months that assumption has changed to a 40% fall, which is a considerable difference.”