UK Residential Mortgage Market Update

In this commentary, we provide an overview of the UK housing market as well as how recent events are shaping trends in residential mortgage-backed securities (RMBS) transactions with collateral originated in the United Kingdom.

Key Highlights
-- In 2024, we expect UK house prices to stabilise and show a modest increase, supported by a number of factors, including low unemployment, moderating inflation, and strong wage growth.
-- The weighted-average mortgage cost is expected to increase because some borrowers are rolling off low fixed rates into new mortgages.
-- Owner-occupied prime mortgages are expected to perform the best followed by prime BTL collateral and then pre-global-financial-crisis collateral.
-- Arrears remain low in absolute terms and hence our rating outlook remains stable across the board.

“The macroeconomic scenario affecting UK RMBS performance has been showing signs of improvement with falling inflation and stabilising house prices. These trends, coupled with an unemployment rate that remains at historical lows, should safeguard owner-occupied portfolios from a sharper deterioration in performance. With possible rate cuts in the coming months providing further relief to borrowers and thanks to substantial wage growth, the affordability of UK mortgages might have already reached the maximum level of stress. However, as a good portion of borrowers still need to refix at higher rates, we would still expect a continued increase in arrears, which have already reached the highest point in the past six years. We found most of the deterioration was in legacy portfolios originated before the global financial crisis. Moreover, buy-to-let mortgage volumes and performance remain affected by the high rate environment”, said Lorenzo Coccioli, Vice President, European RMBS & Covered Bond Ratings.