Tight housing supply will keep UK prices stable, says Moody’s

Low housing supply will help keep property prices stable in the UK and therefore have a positive credit impact on residential mortgage-backed securities, according to Moody’s.

A credit insight report from the ratings agency says that higher prices will help contain the loss severity on repossessed properties, thereby restraining loss in RMBS.

Moody’s says that housing supply in the UK is already very tight, and that housing starts remain subdued.

It says that house builds will have to rise significantly for supply to return to pre-financial crisis levels, and although demand for homes will be dampened by lower household income and credit supply, this will be offset by a rise in the number of households.

The report also says that most UK non-conforming RMBS transactions would be able to withstand an increase in interest rates.

Moody’s says it forecasts the base rate to rise from its current level of 0.5% to 2% by the end of 2013.

It has stress-tested future expected losses in 78 UK non-conforming RMBS transactions, and found that after applying the stresses, the senior, mezzanine and junior ratings held due to the build-up of credit enhancement during the low interest rate environment over the past two and a half years.

The ratings agency says that the low interest rate environment has allowed arrears levels to improve and therefore allowed transactions to rebuild credit, putting them in a better position to withstand future interest rate rises.