Mixed performance for UK buy-to-let RMBS

The performance of the UK buy-to-let (BTL) residential mortgage-backed securities (RMBS) market was mixed during the three months to February, according to the latest quarterly indices published by Moody's Investors Service. Moody's repossessions trend was stable at 0.19% in February, having recorded 0.18% in November 2009.
The 90-days plus delinquency trend performance improved during the three months to February, decreasing to 3.55% from 3.80% in November 2009. Moody's cumulative losses trend increased to 0.20% in February from 0.16% in November 2009, while the annualised total redemption rate (TRR) trend continued to fall, recording 3.63% in February from 4.33% in November 2009.
As of February, GBP 21.0 bln was outstanding in the UK BTL RMBS market, which constitutes a decline of 4.1% over the past 12 months. The market has historically maintained a stable performance but has been under stress in the recent past due to the recessionary environment.
Given that BTL properties are not primary residences, borrowers' behaviour might follow different patterns than in more traditional RMBS markets. Since July 2008, no new transactions have been issued in the BTL RMBS market.
The average house price in the UK increased by 1.1% month-on-month in March, according to the Halifax house price index, following a 1.6% fall in February. Similarly the Nationwide index recorded an increase of 0.7% in March, reversing much of the 0.8% fall in February.
On a year-ago basis the Halifax index was 5.2% and Nationwide was 9% higher than in March 2009. Moody'sEconomy.com believes that a shortage of properties for sale is the primary driver of the upward trend in house prices and that housing demand will remain constrained by high unemployment and tight credit conditions.
The UK economy expanded by 0.4% in Q4 2009 having contracted for the previous six consecutive quarters. In annual terms, UK GDP was 3.1% smaller in the three months ending December 2009 compared to December 2008. Moody'sEconomy.com expects the UK economy to grow by 1.1% in 2010.
In view of the slow recovery, monetary policy is expected to remain accommodative for most of 2010 and thus households will continue to benefit from a low interest rate environment which in turn will contain the number of home repossessions.
Moody's outlook for UK RMBS is negative.