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Moody’s predicts stable 2012 for UK RMBS master trusts

The performance of UK residential mortgage-backed securities master trusts containing prime mortgages will remain stable in 2012, according to a report published today by Moody’s.

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.


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