ROOF Blog

Just a couple of weeks after credit agency Moody’s downgraded nine UK building societies, Fitch has done the same to five. Fitch cut the default ratings of Chelsea, Newcastle, Principality, West Bromwich and Yorkshire building societies because of ‘signs of strain’ on their mortgages as unemployment rises, and has placed Skipton on ‘negative watch’. A spokesperson from Fitch said its concerns were concentrated on higher-risk lending including buy-to-let and self-certification.

The Bank of England is in talks with seven building societies hoping to renegotiate emergency funds made available during the credit crunch. While the building societies – including Chelsea, Yorkshire and Skipton – are not considered in danger of collapse, last week’s downgrading by credit agency Moody’s threatened to breach the terms of the government’s special liquidity scheme, forcing the building societies to either hand the money back or be changed more to use the funding, possibly further reducing the amount of money available for lending.

Nine of the biggest building societies have had their credit ratings downgraded over fears that losses from the downturn in the housing market may be ‘significantly higher’ than expected. Alliance & Leicester, Abbey National and Nationwide have seen cuts in their financial ratings by Moody’s, which expressed concern about the level of losses on self-certified and buy-to-let mortgages.

Repossessions among sub-prime borrowers accounted for 30 per cent of all repossessions in the UK during 2008, Fitch Ratings said yesterday. Despite the sector comprising less than 10 per cent of the entire UK mortgage market, approximately 12,200 properties repossessed last year were from so-called sub-prime borrowers, and the numbers gathered pace during the year, with more properties repossessed in the fourth quarter than in each of the previous three quarters.

Nine UK building societies have had their credit ratings downgraded by agency Fitch as falling house prices and the worsening economy are ‘likely to hit profits’. Fitch said that it was particularly concerned with the large exposure of building societies to sub-prime mortgages, buy-to-let loans and high loan-to-value deals. The ratings of a society indicate the likelihood of it defaulting on its loan, while a lower rating makes it more expensive for that organisation to raise funds. A Building Societies Association spokesperson said that the downgrades would not necessarily lead to mergers.