The U.K. Council of Mortgage Lenders (CML) released data showing that the number of mortgage completions increased slightly in February.

There were 24,300 house purchase loans, compared with 23,400 loans in January — a 4% increase, but still very weak compared with historical averages. Remortgaging showed a steep 20% decline, with only 35,000 remortgage loans compared with 44,000 in January.

Barclays Capital analysts said that they agree with the CML and expect remortgaging to remain weak, as the reversionary rate for a borrowers' mortgage remains attractive compared with new lending rates. 

"For RMBS investors, we see a positive and negative within these figures, with new lending showing signs of life (even though still remaining very low) possibly meaning that house prices may begin to stabilize," analysts said. "However, the lack of remortgage activity increases the risk of low CPRs in transactions and, hence, leads to an extension risk of the bonds."

Barclays analysts said that the lack of remortgaging is also likely to continue as mortgage products have dwindled compared with historical averages, particularly for very high LTVs and due to the more constrained opportunities for refinancing, the CML also estimated that 900,000 homeowners are now in negative equity (currently at low levels with two-thirds expected to be in negative equity by £10,000 ($14.6) or less.

"While drops in interest rates mean there might not be problems making monthly mortgage payments, and hence they may still remain performing, it is the spectre of increasing unemployment that would cause performance to deteriorate significantly and it will be those in negative equity to suffer first and most," Barclays analysts said.


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