KBRA Europe Releases Research – Coronavirus (COVID-19): Implications for the UK Mortgage Market

Kroll Bond Rating Agency Europe Limited (KBRA) releases a report which examines the impact of the coronavirus (COVID-19) pandemic as it relates to the UK mortgage market and the UK RMBS sector.

The UK government’s efforts to “flatten the curve” with respect to the number of people falling sick due to COVID-19 has meant that mortgage originations have decreased substantially. The reduction in originations is meaningfully driven by the impracticality of industry processes under social distancing. Conducting property surveying or structural valuations have become nearly impossible due to fears on the part of occupants and surveyors surrounding interior inspections. Such valuations are an essential part of originating and underwriting of new mortgage loans and, to a smaller extent, remortgages.

Meanwhile, the Bank of England reduced its base rate (BBR) two times in quick succession during the month of March, first to 0.25% from 0.75% on 11 March before a further cut to 0.1% one week later, as a response to the economic impact of the COVID-19 outbreak. In turn, some building societies and other lenders began lowering mortgage interest rates as a result, while others even increased rates—although new remortgage volume may not replace lost purchase volume.

The response by building societies, banks, and specialist mortgage lenders’ has varied from a complete withdrawal of mortgage products for new lending to a tightening of loan-to-value (LTV) criteria or, in some cases, an increase of interest rates. All of these changes reveal the concern that UK mortgage lenders feel about the adverse impact of COVID-19 on delinquencies in the short term and defaults and possible losses in the medium to long term.

Click here to view the report.

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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe Limited is located at 6-8 College Green, Dublin 2, Ireland.

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