UK RMBS: Resilient for the Most Part

Over the last two years, we have observed rising levels of arrears and repossessions in UK RMBS and the wider mortgage market. While not unexpected, given the pressures on affordability brought about by the highest levels of interest rates and inflation in more than a decade, we note that there are considerable differences in asset performance between the various segments that make up the overall market.

In this report, we summarise our observations across the prime, nonprime, and buy-to-let (BTL) sectors as compared with our European RMBS 2024 Outlook; investigate the key drivers of performance in each; and discuss our expectations for the remainder of 2024 and early 2025.

Key highlights include:

-- Arrears and repossessions rise in RMBS portfolios, but performance varies by sector.
-- Prime borrowers prove well able to withstand economic stress amid low unemployment rates.
-- An erosion of buy-to-let profitability leads to performance deterioration, but many landlords are weathering the storm.
-- Weaker credit profiles, a prevalence of floating rate collateral, and adverse selection lead to significant arrears in nonprime transactions.
-- Prepayment rates in BTL and nonprime pools converge with the prime sector.
-- Sustainability of forbearance and arrears management are key for long-term performance in nonprime RMBS.
-- Legacy portfolios across the market perform significantly worse than those originated post-crisis.