One Third of UK Prime Mortgages to Slip Underwater
Fitch Ratings says that 15% of mortgage loans by value in UK prime RMBS master trust programs are in negative equity. The agency expects that to increase to 34% if house prices fall in line with Fitch’s expectations of a 30% house price decline peak to trough, which would mean a further 14% fall from today’s values.
Of the 2.7 million prime mortgage loans totalling GBP 263 bn securitised through RMBS, more than GBP 39 bn of loans are in negative equity and this figure will rise further as house prices continue to fall.
Such an increase in isolation is unlikely to result in negative rating action, since a 30% peak to trough house price decline is already factored into current Fitch RMBS ratings.
While prime borrowers are unlikely to default solely because the value of their house is less than the outstanding balance of their mortgage, Fitch expects default rates to be higher for borrowers in negative equity.
Up to the end of April 2009, Fitch estimates that Northern Rock’s master trust RMBS programme, Granite, with 32% of loans (by value) in negative equity, has the highest proportion and Barclay’s Gracechurch pool, with only 2% of loans in negative equity, has the lowest proportion.
The report, Underwater – Exposure to Negative Equity in UK Prime RMBS analyses the proportion of UK prime RMBS mortgage loans in negative equity by region and by mortgage lender.
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