The marked decline in the U.K. residential mortgage prepayment rate over the past 18 months is unlikely to negatively impact the ratings of the RMBS issued from the 12 U.K. prime master trust programs rated by Fitch Ratings.
"Fitch's ratings address the repayment of principal in full by the legal final maturity and as such are unlikely to be affected by a slowdown in the prepayment rate given that the majority of bonds have long-dated legal finals," said Francesca Zwolinsky, director in Fitch's U.K. RMBS team.
A reduction in the prepayment rate reduces the speed at which trust sizes decline, and breaches a non-asset trigger. It also has the effect of slowing the rate at which credit enhancement can accumulate and may cause certain classes of notes to be repaid less rapidly than expected.
This, said Zwolinsky, could result in certain notes extending past their step-up dates in the absence of being refinanced. Following a step-up date, all relevant notes are re-classified as pass-through notes and are entitled to receive their pro-rata share of principal only.