Remortgage cases have been labelled as an “adverse loan characteristic” by Moody’s Investors Services alongside high LTVs and self-cert products.
The ratings agency has published a special report today on ‘What drives UK mortgage loans to default’ based on Moody’s performance data from UK residential mortgage-backed securities master trusts and prime transactions.
It found that certain loan types and characteristics increase the likelihood of missed payments.
Jonathan Livingstone, Moody’s analyst and co-author of the report, says: “These
include high LTV loans, loans to self-employed borrowers, self-certified products or loans without full income verification due to the fast track process, buy-to-let loans, interest only loans, and remortgages.
“The performance of loans with these adverse characteristics will continue to be closely assessed to ensure that the adjustments assumed in the rating analysis reflect the credit risk of these loans.”
Other adverse characteristics noted by Moody’s include borrowers close to retirement age, loans on high value properties and properties without full internal valuations.
Moody’s says the risk of arrears with these loan characteristics is at the moment only slightly higher than loans without these criteria.
But the rating agency says the default rate could grow for these loan types if the recession deepens.
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