According to Fitch Ratings, 15% of mortgage loans by value in
"Amongst the loans in our analysis, which constitute nearly 25% of all outstanding UK prime mortgages, approximately 270,000 borrowers are in negative equity," said Alastair Bigley, head of RMBS for UK and Ireland at Fitch.
"Of the 2.7 million prime mortgage loans totalling £263bn securitised through RMBS, more than £39bn 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," said Ketan Thaker, director in Fitch's European RMBS team.
"Borrowers with equity in the property have options available to them in case of financial distress that borrowers in negative equity do not, for example sale of property, remortgaging, better availability and pricing of products, and the withdrawal of equity to fund temporary cash shortage, which could help avoid foreclosure."
Amongst the master trust programmes, there is a wide variation of exposure to negative equity. Up to the end of April 2009, using the Nationwide Building Society House Price Index, 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. These significant relative differences will persist if house prices fall further.
"Even assuming that house prices see a modest recovery from their lowest levels, most RMBS transactions are likely to have a sizeable proportion of borrowers in negative equity for some time to come," said Bigley.
The report, 'Underwater - Exposure to Negative Equity in
Date: 22nd, June, 2009
ADVICE TO READERS
While this website is checked for accuracy, we are not liable for any incorrect information included. We recommend that you make enquiries based on your own circumstances and, if necessary, take professional advice before entering into transactions.
Enter your postcode here to find out how much your property is worth, based on Land Registry data.
RSS Feed
Delicious
Digg
reddit
Facebook
StumbleUpon