The rating agency Moody's has significantly downgraded a number of mortgage lenders and building societies, putting some of them close to junk-bond status.
Britannia, Newcastle, Norwich and Peterborough, Principality, Skipton, and Yorkshire building societies
– holding the accounts of millions of British savers – have all been downgraded.
Others had their ratings cut even more dramatically, with Chelsea Building Society, holding the accounts of around half a million savers and 90,000 mortgage
customers, seeing its ratings cut.
Nationwide saw its rating slide, Alliance & Leicester suffered a fall, despite being owned by Santander, and West Bromwich, the UK's seventh largest building society with £9.6bn in assets, also saw its rating downgraded.
Market analysts are interpreting this move as an indication that potentially huge losses are on the cards for the mortgage sector as a result of the property crash.
Marjan Riggi, who compiled the Moody's report, said that the rating downgrades "reflect Moody's concern that the current economic crisis in the U.K and indeed globally will lead to significantly higher credit losses than previously anticipated, particularly among the residential and commercial real estate assets, to which these mortgage lenders and building societies have a highly concentrated exposure."
The ratings agency tested the mortgage lenders' strength on a projected 40 per cent fall in house prices, from their peak in 2007, which will put their capital positions in jeopardy.
"The key concerns for mortgage lenders
in the UK remain the amount of capital available to absorb the upcoming losses," Mr Majan said, "especially those arising from specialist loan books (typically self-certified loans, buy-to-let loans, second-lien loans, or purchased loans), and commercial real estate loans where concentration risks are high."
A Chelsea Building Society spokesman said that this is a "knee-jerk reaction" from Moody's, the Guardian reported, and that it was over-reacting to its own failure to foresee the extent of the current credit crisis.
Adrian Coles, director-general of the Building Societies Association
, told the Financial Times that the Moody’s stress test of the UK housing market "seems pessimistic and extreme."
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