For the first time, the U.K. buy-to-let sector is experiencing a recession with falling house prices and rising unemployment.
Moody's Investors Services analysts said that the level of arrears is rising, but remains within expected levels. However, since BTL properties are not the owners' primary residences, it could lead to a rise in prepayments as BTL investors decide to cash in their investment and lock into the capital gain.
According to Moody's, key performance measures indicate that U.K. BTL delinquencies increased significantly in 1Q09, mainly driven by the Aire Valley Master Trust.
Both the outstanding repossessions and the cumulative loss trend also increased during the quarter, although at a lower scale. "With the economy in recession and unemployment rising, tenant demand and tenants ability to make timely payments will be tested over the coming quarters," Moody's analysts said.
However, in 1Q09, Moodys did not take any performance-related rating actions on outstanding UK BTL RMBS transactions.