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Announcement:

Moody's: Older interest-only mortgage borrowers in the UK face biggest refinancing risk

01 Mar 2018

London, 01 March 2018 -- Older UK borrowers hoping to repay interest-only (IO) mortgages at maturity using conventional amortising loans face the greatest refinancing risk as most banks are reluctant to lend to people far into retirement, says Moody's Investors Service in a report published today. However, equity release loans could be a viable alternative for some.

The report draws conclusions from a study of the underlying collateral pools of Moody's-rated residential mortgage backed securities (RMBS), assuming zero house-price growth.

"In particular, interest-only mortgage borrowers currently in the 45-65 years old bracket have the fewest refinancing options. They can reduce their refinancing risks by switching to an amortising product. If they don't most will need a tailored solution when their loans mature," says Greg Davies, Assistant Vice President -- Research Analyst at Moody's.

"At maturity, they will have very limited options to switch to either an equity release or amortising product and will be heavily reliant on significant, prior house price growth to fully finance their outstanding loan balances," adds Mr. Davies.

Only 15% of borrowers from all age ranges who wait until maturity will be able to switch to an amortising product, while 76% of borrowers will have limited refinancing options at maturity.

"Borrowers that do not refinance today will likely benefit from customised solutions aimed at preventing foreclosure. Retail banks can offer such solutions to borrowers that now have limited options to refinance into an amortising product or at IO maturity, or cannot fully refinance their outstanding loans via an equity release product," adds Steven Becker, Assistant Vice President -- Analyst at Moody's.

A large proportion of borrowers (80%) at loan maturity are eligible for equity release products that would be able to finance up to 50% of their outstanding balances. However, equity release products are subject to constraining factors, like affordability and loan-to-value (LTV) related aspects such as house price inflation and product availability.

House price growth increases the proportion of borrowers that can refinance using equity release products. In particular, house price growth in South East England has outpaced other regions of the UK, which is a credit positive for borrowers' eligibility in terms of LTV ratios, especially those who intend to fully refinance their IO mortgages with an equity release product.

Moody's report, "Interest-Only Mortgages - United Kingdom: Older loan borrowers face refinancing risk; equity release product is an option for some," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.

Subscribers can access the report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1112141

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Gregory Davies
Asst Vice President - Research Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Olga Gekht
Senior Vice President/Manager
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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