Buy-to-let RMBS remain stable
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The performance of the UK buy-to-let residential mortgage-backed securities market continued its stable trend during July 2010, says Moody’s.
In July 2010, the 90+ day delinquency trend performance improved to 2.93%, repossessions remained at 0.18% and cumulative losses increased to 0.29%.
The Moody’s annualised total redemption rate trend increased to 4.10% in July 2010 from 3.94% in June 2010, but remains lower than 5.03% recorded in July 2009.
As of July, Ludgate Funding Series 2007-FF1 was the only UK buy-to-let RMBS transaction with a reserve fund drawn below its target level.
The low interest rates and rising house prices in the UK have helped to contain delinquencies and reduce repossessions over the past year.
Moody’s expects growth in the UK economy to remain sluggish, compared to normal economic recoveries, at 1.2% in 2010 followed by 2.3% in 2011.
The fiscal tightening that the coalition government will embark on brings a degree of uncertainty to the strength of Moody’s growth projections.
Unemployment, which averaged 7.6% in 2009 is expected to peak at 7.9% in 2010. There is an adverse risk to this forecast due to civil service employees being subject to budgetary cutbacks.
House prices fell close to 20% from their peak in the second half of 2007 to a trough in H1 2009, according to the main indices. Since then, house prices have rebounded between 7%-12% depending on the index observed.
Moody’s expects house prices to remain relatively flat over the next year as the pressure of high unemployment and increases in taxes exert pressure on household finances. Additionally, the tight credit conditions will likely discourage many potential property buyers from the market. On the supply side, new house building is likely to remain subdued.
Although the long-term trend of tight supply in the UK will prevail, in Moody’s view the weakness in demand is likely to keep price growth low in the medium term.
Given the slow recovery, Moody’s expects UK monetary policy to remain accommodative for most of 2010. Households will therefore continue to benefit from a low interest-rate environment which, in turn, will constrain the number of home repossessions.
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