The trade body representing UK building societies today said it was "disappointed and surprised" after a leading ratings agency downgraded nine of its members amid fears of rising bad debts.

Moody's has cut its investment ratings on the mutuals due to concerns over "significantly" higher credit losses than first thought on mortgages and commercial property loans.

The downgrades - based on a scenario of a 40% peak-to trough fall in house prices - is significant because it is likely to be more difficult for the building societies to refinance debts as a result.

Despite the recent failure of the Dunfermline building society in Scotland, mutuals have suffered less damage so far than banks due to their more conservative funding strategies, which are more heavily reliant on savings.

The Building Societies Association said the sector had "weathered the storm well".

"We are fairly disappointed by what Moody's have done and very surprised by it, not least because it is based on a very pessimistic view of future house prices," a spokesman said.

The nine societies downgraded include the UK's biggest, Nationwide, which has itself stepped in to rescue weaker mutuals as the financial crisis unfolded last year.

Nationwide's monthly house price index shows a 19% fall in prices since the peak of the market in October 2007, although there have been been signs in recent months that the pace of the decline is easing off.

A spokeswoman stressed Nationwide's strong balance sheet, with an equity tier 1 ratio - a key measure of capital strength - of 12.7% as of the end of January. "We remain comfortable with our performance," she said.

Ratings were also downgraded on Chelsea, Coventry, Newcastle, Norwich & Peterborough, Principality, Skipton, West Bromwich and Yorkshire building societies.

Moody's analyst Marjan Riggi said her concerns in the sector included the amount of capital available to absorb future losses, potential further hits from financial instruments hit by the crunch, and limited ability to raise new capital due to societies' mutual status.

But none have been downgraded to 'junk' status, because of the increased likelihood of Government support in the event of a crisis to ward off systemic problems, underpinning their investment status.

In contrast with most mutuals, all the former building societies which converted to bank status - such as Northern Rock, Bradford & Bingley and Alliance & Leicester - have either been taken over or nationalised.