Fitch Ratings said that 15% of mortgage loans in U.K. prime RMBS master trust programs have negative equity.
The agency expects that number to increase to 34% if house prices fall in line with Fitch's expectations of a 30% house price decline peak to trough. This would mean a further 14% drop from today's values.

"Among the loans in our analysis, which constitute nearly 25% of all outstanding U.K. prime mortgages, approximately 270,000 borrowers are in negative equity," said Alastair Bigley, head of RMBS for U.K. and Ireland at Fitch.
"Of the 2.7 million prime mortgage loans totalling ₤263 billion ($432.2) securitized through RMBS, more than ₤39 billion of loans are in negative equity and this figure will rise further as house prices continue to fall."

There is a wide variation of exposure to negative equity between the master trust programs. Up to the end of April 2009, using the Nationwide Building Society (NBS) House Price Index, Fitch estimated that Northern Rock's master trust RMBS program Granite, which has highgest proportion of loans (by value) in negative equity at 32%.
Barclays' Gracechurch pool, with only 2% of loans in negative equity, has the lowest proportion. These significant relative differences will persist if house prices fall further.

However, Fitch said that this increase in isolation is unlikely to result in any negative rating action, since a 30% peak to trough house price decline is already factored into current Fitch RMBS ratings.

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