Concern about UK mortgage losses is starting to rise.
While nobody expects the UK to be hit by defaults that are anywhere near the scale of the US subprime world, two recent reports indicate that the trends are worsening, which in turn could create new pressure for some lenders.
Standard & Poor’s, the ratings agency, for example, issued a report last week that said 'delinquencies have been rising, although losses remain low', in the so-called 'nonconforming residential mortgage-backed securities market' – or that sector of finance where loans are made to households with poor credit histories and then repackaged into bonds.
More specifically, delinquencies in this UK nonconforming market rose to 21.73% in the first quarter of this year, against 19.41 per cent in the previous quarter. Meanwhile, the level of households that were delinquent for more than three months rose to 10.6%, S&P said.
'A reduction in refinancing opportunities for borrowers, the large proportion of loans (approximately 25%) due to revert from fixed or discount rates in the first half of 2008 into an environment of reduced credit availability, and the slowing economy, are likely to keep delinquency figures high for the foreseeable future,' said credit analyst Kate Livesey.
Separately, Moody’s issued a report late last month that showed defaults on mortgages to good-quality UK borrowers – known as 'prime' loans – were also rising.