Five UK building societies see credit rating slip

The credit rating of five British building societies has been downgraded, as the mutual sector continued to come under pressure.

Rating agency Fitch Ratings said it had downgraded the Chelsea, Newcastle, Principality, West Bromwich and Yorkshire building societies.

It added that it was also placing Skipton Building Society on rate watch negative.

The group said it was concerned about some of the higher risk lending carried out by the building societies, such as buy-to-let, self-certification and commercial mortgages, as well as loans made to people with adverse credit histories.

It said the combination of rising unemployment and falling house prices meant losses on these mortgages were likely to increase.

Matthew Taylor, senior director in Fitch's financial institutions team, said: "Fitch's concerns are concentrated on higher-risk lending by societies, which includes buy-to-let, self-cert, adverse, purchased loans and commercial mortgages.

"The weakening economic environment has increased the credit risk of the societies, as unemployment has risen and continues to rise, and house prices have fallen."

Andrea Jaehne, director in Fitch's financial institutions team, added: "Fitch expects larger loan impairment charges to erode earnings, making societies more vulnerable in the case of further deterioration in loan quality or other shocks."

However, the group said the loan book of most of the societies was made up mainly of low-risk, mainstream mortgages, while capital levels were at least adequate at all the societies, and in some cases were strong.

It added that it had also affirmed the credit ratings for the Britannia, Coventry, Leeds and Norwich and Peterborough building societies.