UK mortgage defaults up in 2nd quarter: S&P

Aug 27, 2008
UK mortgage defaults up in 2nd quarter: S&P

LONDON: The number of Britons failing to meet mortgage repayments
rose significantly in the second quarter and the pattern suggests
worse lies ahead, according to a report by Standard & Poor's (S&P).

While the bulk of defaults remained in the subprime sector, a sharp
contraction of credit availability has led to growing strains even
for prime borrowers.

House prices in Britain have dropped by about 10 per cent since last
August after a decade in which property values almost trebled. With
unemployment also rising and a recession looming, banks have
tightened their lending criteria. Many now refuse to offer mortgages
to homebuyers with less than a 25 per cent deposit.

Figures from the Council of Mortgage Lenders show there were 18,900
home repossessions in Britain in the first half of this year, up from
13,400 in the same period last year.

S&P said its delinquency index for UK non-conforming residential
mortgage-backed securities rose to 23.31 per cent in the second
quarter. That was up from 22.17 per cent in the first quarter and the
highest since the index began in 2004.

Delinquencies for prime residential mortgage-backed securities rose
to 2.94 per cent from 2.33 per cent in the previous quarter.

'The rise in delinquencies is being driven by affordability pressure,
especially for those borrowers whose loans are resetting to higher
floating interest rates,' said S&P credit analyst Kate Livesey.

'With no sign of credit conditions easing and house prices continuing
to fall, we expect delinquencies to continue rising and losses to
increase over the coming quarters.'

S&P lowered the ratings on tranches of 11 nonconforming UK
residential mortgage-backed securities transactions in the second
quarter and placed the ratings of eight transactions on CreditWatch
negative, reflecting deteriorating collateral performance.

It noted that losses were appearing earlier in the lives of some of
the most recent transactions, suggesting worse pain to come.