New rules on affordability announced by the UK Financial Services Authority (FSA) following its Mortgage Market Review (MMR) will, over the long term, be credit positive for UK prime RMBS and credit negative for UK non-conforming RMBS, says Moody’s Investors Service.
The new rules, which are broadly in line with the proposals announced on 19 December 2011, will also be credit neutral for UK RMBS in the short term.
“In the long term, the new rules will be credit positive for UK prime RMBS as they introduce affordability rules, which cover areas such as interest only and proof of income,” says Sophia Velissaratou, a Moody’s Associate Analyst. “However, the new rules will be credit negative for UK non-conforming RMBS over the long term, as it will be more difficult for these weaker borrowers to take advantage of proposed waivers on affordability checks,” adds Ms. Velissaratou. As such, these borrowers will continue to have extremely limited refinancing options.