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Announcement:

Moody's updates transaction assumptions upon completion of performance review of UK RMBS portfolio

17 Nov 2021

London, 17 November 2021 -- Moody's Investors Service, ("Moody's") has completed the performance review of the UK residential mortgage backed securitisation ("RMBS") portfolio as part of its ongoing surveillance efforts. The scope of the review covered 38 prime transactions which included 6 master trust programmes, 37 buy-to-let transactions, and 62 non-conforming transactions. The review led to Moody's reducing its expected loss assumptions for most UK RMBS transactions, as well as its MILAN CE assumptions for 1 prime transaction, 10 buy-to-let transactions, and 35 non-conforming transactions, due to better than expected collateral performance and a stable economic outlook for the UK.

RMBS collateral performance has been better than expected across transactions despite the economic disruption caused by the coronavirus pandemic. During the peak of the pandemic, UK RMBS saw some of the highest payment holiday levels, reaching on average 20% in the RMBS transactions rated by Moody's. The UK's coronavirus payment holiday scheme and other coronavirus related forbearance measures have been mostly phased out, yet this did not translate into materially worsened collateral performance in the RMBS transactions. In addition, the post-Brexit trade agreement removed some of the uncertainties that had hampered economic growth and investment in the UK. Moody's expects that the UK economy will continue to grow in 2022 and enter a stable growth phase through 2023. Moody's forecasts that the UK unemployment rate will decrease to 4.7% in 2022 from 4.8% in 2021, compared to the 7.8% previously expected for 2021 at the peak of the pandemic in August 2020 (for more information please refer to "Global economy will gain steadier footing although supply troubles, inflation pose risk" at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1304403). Furthermore, continued growth in house prices has also supported performance of the outstanding RMBS portfolio. Q2 2021 saw a 10.9% increase in house prices in the UK year-over-year. In July Moody's revised its collateral forecasts for all three UK RMBS sectors to stable from negative, based on our expectation that asset performance will remain stable over the next 12 - 18 months.

Moody's reassessed its lifetime expected loss assumptions of the transactions to reflect their collateral performance to date and expectation of future performance. Observed cumulative losses have remained unchanged since a year ago, averaging at 0.02% (minimum of 0.0% and maximum of 0.40%) in prime RMBS, 0.16% (minimum of 0.0% and maximum of 2.85%) in buy-to-let RMBS, and 2.33% (minimum of 0.0% and maximum of 8.36%) in non-conforming RMBS. Delinquencies have similarly remained stable, with 90+ days delinquencies currently standing, on average, at 1.19% (minimum of 0.0% and maximum of 12.02%) in prime RMBS, 0.38% (minimum of 0.0% and maximum of 2.79%) in buy-to-let RMBS, and 14.78% (minimum of 0.29% and maximum of 54.67%) in non-conforming RMBS. In addition, portfolios have continued to deleverage with prepayment rates that are in line with the historic level.

Moody's reduced the expected loss assumptions of 37 prime transactions, 36 buy-to-let RMBS transactions, and 53 non-conforming RMBS transactions. As a result the portfolio average expected loss over original balance of prime RMBS decreased from 1.4% to 0.8%, of buy-to-let RMBS from 1.9% to 1.2%, and of non-conforming RMBS from 5.3% to 4.4%, which translates to a decrease in expected loss over current balance from 2.0% to 1.2% for prime RMBS, from 2.6% to 1.5% for buy-to-let RMBS and from 7.9% to 4.9% for non-conforming RMBS.

Moody's decreased the MILAN CE assumptions for 1 prime transaction and 10 buy-to-let transactions by 16.7% on average, due to either the limited impact of substitution on portfolios after the revolving and pre-funding period has ended and/or benchmarking against comparable portfolios. As a result, the average MILAN CE in buy-to let RMBS decreased from 13.5% to 13.0%.

Moody's revised the MILAN CE assumptions for 35 non-conforming RMBS transactions by 14.8% on average to reflect the decrease in the MILAN CE implied by the Minimum Expected Loss Multiples subsequent to the reduction of expected loss assumptions. As a result, the average MILAN CE in non-conforming RMBS decreased from 22.9% to 20.8%.

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.

Yunkun Zhang
Associate 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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