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Moody's downgrades outlook on UK auto- and residential mortgage-based securities

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Not quite a ratings downgrade, but a move in that direction. Includes everything but 'prime' mortgages:

[Added emphasis, ABS is asset-backed security, RMBS is residential mortgage-based security]

Quote

Rising levels of household indebtedness and a weaker macroeconomic environment are the key drivers behind the negative collateral outlooks on four of the five UK consumer structured finance sectors, says Moody's Investors Service in a report published today.

"Household debt is high and still growing, leaving consumers vulnerable to an economic downturn, while higher inflation, weaker wage growth and levels of indebtedness leaves those in lower-income brackets the most exposed," says Greg Davies, an Assistant Vice President, Research analyst at Moody's...

As such, Moody's says it has changed the collateral outlooks on most UK structured finance sectors to negative to reflect the consequences of the negative trends on consumer deal performance over the next 12-18 months.

The collateral outlook on prime RMBS is the only one that remains stable. "We have maintained the stable outlook on UK prime RMBS because this mortgage market is robust, with borrowers that have strong repayment capacity and have benefited the most from the recent decline in the interest rates", explains Mr. Davies.

For non-conforming RMBS, on the other hand, borrowers are those who are more likely to be paying higher interest rates and have a smaller buffer to absorb any shocks. Moody's notes, though, that average loan-to-value (LTV) ratios in the non-conforming universe are lower than in previous years; this could offset the negative impact arising from an increase in arrears.

The UK buy-to-let (BTL) sector - also with a negative collateral outlook - is highly sensitive to changes in the UK economy because of low spreads and the recent trend of decreasing rents in the London region. The high proportion of interest-only underlying loans creates the potential for high back-loaded principal losses, in particular if house prices decline.

Delinquencies are likely to rise slightly for auto asset-backed securities (ABS), though from a low base, owing to a weaker economy. Growth in the use of Personal Contract Purchase (PCP) plans has encouraged higher debt levels and may have allowed less creditworthy borrowers access to credit. Moody's notes, however, that any rise in arrears levels will not be evenly distributed because some of the captive originators could be more insulated from weaker borrowers.

Finally, the rating agency expects delinquencies and charge-offs for credit card ABS to rise particularly if unemployment increases. Charge-offs and delinquencies are at a historical low, and cannot feasibly reduce much more. Therefore, any negative changes in consumer debt-service capacity will result in higher - albeit from a low base - charge-offs and delinquencies.

https://www.moodys.com/research/Moodys-Rising-household-indebtedness-and-weaker-macro-outlook-will-weaken--PR_370580

More in the Guardian: https://www.theguardian.com/business/live/2017/jul/31/oil-sanctions-venezuela-china-uk-credit-eurozone-pmis-?page=with:block-597f1446e4b06059b8ca7a61#block-597f1446e4b06059b8ca7a61

 

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Time to fire up the money printing presses again.

Also, maybe some sort of PPI-like 'compensation' scheme for people 'mis-sold' PCP ought to get the money flowing!

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The UK buy-to-let (BTL) sector - also with a negative collateral outlook - is highly sensitive to changes in the UK economy because of low spreads and the recent trend of decreasing rents in the London region. The high proportion of interest-only underlying loans creates the potential for high back-loaded principal losses, in particular if house prices decline.

 

:lol:

Low spreads and back-loaded principal losses.I just love the wording.In talking over the back fence to the neighbours speak "they F+++++d" .

Edited by durhamborn

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11 minutes ago, durhamborn said:

The UK buy-to-let (BTL) sector - also with a negative collateral outlook - is highly sensitive to changes in the UK economy tax credits and EU migration because of low spreads and the recent trend of decreasing rents in the London region. The high proportion of interest-only underlying loans creates the potential for high back-loaded principal losses, in particular if house prices decline.

 

:lol:

Low spreads and back-loaded principal losses.I just love the wording.In talking over the back fence to the neighbours speak "they F+++++d" .

 

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What in hell are the ratings agencies waiting for? Is it not obvious to them that nothing has been fixed in the past eight years, that the UK is no better off than Spain or Italy and should be rated likewise.

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