Over the longer-term, an unsustainable rise in house prices and an increase in riskier lending could damage UK mortgage performance, and these risks need to be monitored. But a number of provisions in the scheme, combined with generally improved underwriting standards since the financial crisis, will help offset these risks. If it succeeds in getting a range of lenders comfortable with high loan to value (LTV) lending, the scheme could increase prepayment rates in UK RMBS transactions as it becomes cheaper to refinance existing high LTV borrowing with another lender. Data from Fitch-rated UK RMBS transactions show that annual prepayment rates fell to 5%-15% in 2009-2010, and remain below the range of about 20%-40% before the financial crisis. However, while they might increase, we would not expect prepayment rates to recover to pre-crisis levels, as total exposure of RMBS pools to high LTV loans would probably be relatively low, due to the presence of seasoned loans. Rising house prices and increased turnover in the property market would also be modestly positive for existing UK RMBS transactions. The Royal Institution of Chartered Surveyors (RICS) said Tuesday that the balance of surveyors reporting an increase in house prices last month had hit its highest level since June 2002. Borrowers who struggled to make payments would be more inclined to try and resume repayments if they were not in negative equity, and could potentially sell their house to repay their loan. The post-crisis rise in UK mortgage arrears stabilised in 2010 when house prices bottomed out, suggesting a connection between prices and arrears levels. Similarly, banks selling repossessed properties would recover more of their original advance in a rising and busier market, not just because prices are higher but because forced sale discounts would be lower. By increasing the availability and lowering the cost of high LTV lending, the government mortgage guarantee scheme arguably poses risks to the longer-term performance of the UK mortgage market, by encouraging riskier lending. However, we think these risks are mitigated by certain provisions in the scheme. These include affordability tests, the limited duration of the scheme, which will last for three years, and the fact that lenders are still exposed to some losses, and that once a lender provides a guaranteed mortgage product at a particular LTV, all of its lending at that LTV has to be guaranteed, limiting adverse selection. Nor can borrowers use the guarantee to re-mortgage with the same lender or to finance second homes or buy-to-let properties. In addition, the scheme is going to be monitored by the Financial Policy Committee at the Bank of England for its potential of raising systemic risk.
RPT-Fitch: Help-to-Buy Positive for UK RMBS, Risks Need Monitoring
A link has been sent to your friend’s email address. 1 To find out more about Facebook commenting please read the Conversation Guidelines and FAQs UK’s Royal Mail soars on stock market debut By Pan Pylas and Danica Kirka, Associated Press 9:07 a.m. EDT October 11, 2013 Royal Mail vans lined up at London’s largest sorting office Mount Pleasant. The shares of Britain’s postal service were up 31% to 432 pence ($6.91) by midday, a hefty gain for shareholders who got them at 330 pence. Nearly 150 million shares, or 15% of the total issue, changed hands. “One can only say that investors have clearly given their stamp of approval to the offering,” said Brenda Kelly, senior market strategist at IG. But the opposition Labour Party argues that the gains prove the government shortchanged taxpayers and could have gotten more than the 1.72 billion pounds ($2.75 billion) it received from the sale. “The government has a lot of explaining to do,” the Labour Party’s business spokesman, Chuka Umunna, wrote on Twitter. The privatization is symbolic for the Conservative Party, the main party in the coalition government. Much of its electoral success in the 1980s under Prime Minister Margaret Thatcher was due to the sale at the time of state assets such as British Gas and British Airways. Business Secretary Vince Cable, who is a member of the Liberal Democrats, the junior party in government, dismissed claims the sale had been undervalued, telling BBC Radio that the sharp price rise was no more than “froth and speculation.” Big financial institutions, such as pension funds and sovereign wealth funds, are trading the shares Friday in what is known as conditional trading. Smaller shareholders who tended for only 750 pounds ($1,200) and bought through brokers were able to trade, too. Those who bought shares directly, including postal workers who got free stock, will get their chance to trade on Tuesday. Following Friday’s surge, the company is now valued at nearly 4.5 billion pounds ($7.2 billion), which means it is easily in the top 100 British companies by market capitalization. As a result, it could be listed on the FTSE 100, Britain’s main stock index, when the index is revised in December that would attract further investor interest.
UK’s competitive mobile market will protect consumers claims Ofcom
The communications regulator on Friday published a consultation on increasing the proposed license fees for mobile spectrum. Ofcom said that it was the government who ordered for the consultation in 2010 to revise the annual fees paid by the mobile network operators for two spectrum bands 900 MHz and 1800. This may result in operators paying up to four times than the current annual fees. Some analysts are even concerned as hike in fees might see consumers taking the price hike brunt. Responding to the analysts concerns Ofcom said that it believes that the stiff competition among the four leading UK mobile operators should discourage mobile operating companies from putting up higher prices. Under the new proposal EE will have to pay 107.1m instead of 24.9m, Vodafone and O2 to pay 83.1m instead of 15.6m and Three UK will end up paying 35.7m instead of 8.3m. If implemented, the hike will be effective from 2014. Ofcoms spokesperson told Wired.co.uk that UK is one of the most competitive markets when it comes to mobile phones and this the factor that will ensure that consumers dont face the brunt of the price hike. Our proposed fees are in line with analysts expectations and with the amounts that operators pay for accessing spectrum in other countries, so should come as no surprise to the mobile companies said Ofcom. Ofcom has put the proposal under consultation ending December 19 and has said that if carriers have good enough argument against the price hike will listen to them. Tags