UK repossessions spike in Q3, delinquencies continue rising

With the UK economy in recession and unemployment, personal insolvencies and house possessions all rising sharply, the performance of Non-Conforming mortgages is likely to continue to deteriorate, says Moody's Investors Service in its latest index report for the sector.
According to the report, the weighted-average delinquency trend for the UK Non-Conforming RMBS sector continued to rise during Q3 2008 increasing to 11.2% of the current outstanding balance, up from 10.0% in Q2 2008.
The weighted-average repossessions trend jumped to 2.7%, and the cumulative loss trend over original pool balance reached 0.48% in Q3 2008.
"Transaction activity in the housing market is low and consumer confidence is depressed — pointing towards continued falls in house prices," said Nitesh Shah, a Moody's Economist and co-author of the report entitled 'UK Non-Conforming RMBS Q3 2008 Indices'. Falling property prices put additional pressure on the mortgage servicers, and create an incentive for them to repossess and sell the properties early. There is a risk of a second round impact on the house prices, if ceteris paribus the supply of property on the market increases when the repossessed properties are offered for sale.
Despite current low re-mortgage activity and tighter credit conditions, there has not been any significant drop in total redemption rates (TRR) so far. With a TRR of 29.8%, the 2006 vintage is performing in line with historical experience. "However, it is unlikely that the 2007 vintage will show repayment rates comparable to those recorded for older vintages," said Georgij Ludmirskij, a Moody's Senior Associate and report co-author.