Nine building societies, including Nationwide, have been downgraded by Moody’s amid concerns about their exposure to falling house prices and specialist mortgage loans.

The ratings agency said it had made the downgrades after stress-testing how mutuals would perform against a base case scenario of a 40% fall in house prices from the peak of the boom. It also stress-tested a more extreme scenario based on a 60% fall.

Some societies have been downgraded by three notches, making it tougher and more expensive for them to raise or roll over funding in the wholesale markets, though all mutuals rely primarily on retail deposits to fund themselves.

Moody’s said it had changed its assumptions about UK house prices. It also stress-tested the mutuals’ commercial loan portfolios, where it expects the performance to worsen during the next few years.

Financial Times, The Times