The ratings agency says such trusts will experience only a marginal deterioration this year as a result of the slow economic recovery in the UK.
It says this deterioration will particularly affect master trusts with either a high proportion of buy-to-let or non-conforming collateral, or those with prime collateral with riskier characteristics, due to the limited refinancing opportunities available to such borrowers.
Moody’s reports a stable/deteriorating outlook for the UK prime RMBS sector and a negative outlook for the UK banking sector.
Jonathan Livingstone, senior analyst at Moody’s and author of the report, says: “In 2012, stable collateral performance will be driven by stable house prices, stable mortgage rates, a relatively small increase in the unemployment rate and continued lender forbearance.”
But he adds: “We believe there is the potential for the performance on UK prime RMBS to deteriorate slightly due to reduced government spending and increased taxes. Furthermore, a slowerthan expected economic recovery, which could result from a worsening of the euro area sovereign crisis, would adversely affect performance in the sector.”
The Moody’s report shows the performance of the trusts remained stable in 2011, with three-month arrears for the UK prime RMBS sector remaining around 1.8% over the past 12 months.
Weighted-average repossessions over the past 12 months have increased slightly from 0.25% to 0.29%, which Moody’s says is mainly due to an increase in repossessions in the Granite master trust.
The weighted-average loan-to-value ratio of the trusts has remained fairly constant at 66.5%, although the indexed LTV has increased slightly from 66.9% to 68.9%.
The proportion of borrowers in negative equity has increased from 6.5% in 2010 to 8.3% in 2011.
Additionally, all Aaa rated tranches have maintained their rating since the inception of the trusts.