UK prime RMBS remained stable In November 2010
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The performance of the UK prime residential mortgage-backed securities market continued its stable trend during November 2010, according to the latest indices published by Moody’s Investors Service.
In November 2010, the 90+ day delinquency trend rose slightly to 2% from 1.9% in the previous month.
Outstanding repossessions and cumulative losses stabilised at 0.12% and 0.17%, respectively. Moody’s annualised total redemption rate trend increased to 12.81% during November 2010, up from 12.73% in November 2009.
Moody’s believes that the low interest rate environment has helped to contain delinquencies and reduce repossessions over the past year by keeping mortgage repayment instalments relatively low.
The rating agency expects the UK economy to have grown by 1.6% in 2010 and believes it will expand by 2.3% in 2011. The government has engaged in a fiscal consolidation programme involving tax increases and benefit cuts.
Moody’s anticipates that these measures will reduce disposable income and lead to many households facing rising difficulties in making their mortgage payments. Therefore, although performance is improving, downside risks remain.
Moody’s expects unemployment, which averaged 7.6% in 2009, to average 7.9% in 2010 and 8.0% in 2011. The rating agency believes that these figures may potentially increase when considering civil service employees subject to budgetary cutbacks that may be unable to find alternative employment in the private sector.
Moody’s expects house prices to remain broadly flat over the next two years after rising for most of the past year. After falling approximately
20% from H2 2007 to H1 2009, house prices rebounded close to 10% in H1 2010 before losing most of these gains over the second half of the year.
Both the Nationwide and Halifax indices point to continued weakness in house prices, as they are either falling or only rising very slowly.
The rating agency expects house prices over the next 12 months to remain unchanged as the pressure from high unemployment levels and tax increases weigh on households and temper demand. Moody’s anticipates that continued tight credit conditions will discourage many potential property buyers and that new house building will likely remain subdued.
Moody’s has rated all 131 UK Prime RMBS transactions, of which 90 are outstanding that have been launched since 1999.
As of November 2010, the total outstanding pool balance in the UK Prime RMBS market was £303.98bn, compared to £357.86bn for the same period in the previous year. This constitutes a year-on-year decrease of 15.1%.
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