The ratings agency says that when Government support schemes such as the special liquidity scheme and credit guarantee scheme come to an end, in 2012 and 2014 respectively, there will be a “lack of viable resources” to fill the £319bn funding gap which is left.
It says that building societies have found it harder to raise deposits because of the “perceived safety” of the Government-backed banks.
It says building societies have seen £8bn of outflows in 2009, which has forced them to curb lending.
It says: “Without access to cheaper Government-backed funding, many societies will find it increasingly difficult to survive.”
Moody’s says that it expects to see more consolidation across the mortgage sector in 2010 and 2011.
It says: “We believe that as the UK Government gradually disentangles itself from the extra-ordinary support of the banking system many of the smaller lenders will have to either consolidate with stronger entities or be at the risk of break-up or distressed exchanges.”
Moody’s says that some lenders will weather the storm better than others and points to those which did not have a cap on their standard variable rates – such as Leeds and Principality – as being able to pass on their costs to borrowers.
The ratings agency warns that it is “highly uncertain” as to whether the market for residential mortgage-backed securities will be able to plug the funding gap left by the closure of the Government schemes.
It says this may lead to lenders further restricting lending volumes, which will put the brakes on the housing market and in turn make it harder for borrowers to sell if they get into repayment difficulties.
Moody’s says the knock-on effect of this means that lenders orignating RMBS may see their credit rating decline.