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Arrears on sub-prime mortgages hit record high

Arrears on sub-prime mortgage loans in the UK hit a record high of 28.6% for Q4 last year, research from Standard & Poor’s shows.

The Q4 report from S&P Ratings Services reveals that the comparative figure for Q3 was 25.1%.

Outstanding arrears over 90 days are now at 12.5%, up from 10.3% the previous quarter.

Repossession cases have also shot up, going from 2.8% to 3.5% in the space of three months.

S&P noted only 1.6% of sub-prime assets were in arrears as at Q4 2007.

Ratings across the UK non-conforming residential mortgage-backed securities sector have taken a hammering over the last year, with more negative rating actions in the sector than ever before.

Some 10% of ratings outstanding at the beginning of 2008 ended the year at a lower rating, but only 2.5% ended on a higher rating.

Kate Livesey, analyst at S&P Ratings Services, says: “In our opinion, increases in delinquencies during 2008 were primarily driven by affordability issues coupled with an inability of borrowers to refinance.

“At the beginning of the year we believe that many 2005 and 2006 vintage fixed rate borrowers suffered from the payment shock of reverting into a higher interest rate environment causing many to fall into arrears.”

Livesey adds that arrears levels are set to rise even further during the course of this year.

She says: “Going into 2009, despite recent cuts in mortgage rates, we believe wider economic factors – particularly the likelihood of further rises in unemployment – could cause further deterioration in UK non-conforming performance.”

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