Nine building societies have credit ratings downgraded

Nine of Britain’s biggest building societies, including Nationwide, have had their credit ratings downgraded in anticipation of further pain to come in the UK housing market.

Marjan Riggi, Moody’s lead analyst for UK mortgage lenders, said that the action had been taken after stress-testing scenarios that incorporated a peak-to-trough decline in house prices of 40 per cent. Some building societies have been downgraded by three notches, making it more expensive for them to raise funding in the wholesale markets.

As well as Nationwide, Moody’s downgraded Chelsea Building Society, West Bromwich, Principality, Newcastle, Skipton, Yorkshire, Norwich & Peterborough and Coventry. Some are considering challenging their ratings with Moody’s.

At the same time, there are signs that the cost of borrowing for homeowners may have bottomed out, with Barclays set to increase the cost of fixed-rate mortgages despite the Bank of England leaving interest rates unchanged this month. Other lenders are expected to follow suit.

Barclays is pulling a 3.99 per cent four-year fixed-rate deal for borrowers with a 40 per cent deposit, from tomorrow. It is also increasing the costs of its three- and five-year fixes by up to 0.4 percentage points.

Woolwich, the mortgage arm of Barclays, blamed the decision on a rise in the cost of longer-term wholesale borrowing, which banks use to fund new mortgage lending.

The bank is the first big lender to increase rates since the cost of borrowing hit a historically low level at the beginning of February. Brokers see this as evidence that mortgage rates have no further to fall.

Melanie Bien, of Savills Private Finance, said: “It was only a matter of time before lenders starting edging up their longer-term fixes. Borrowers who have been trying to time the bottom of the market in terms of mortgage rates may be wise to secure a longer-term fix now.”