As negative headlines splash across financial journals, with threats of litigation in the U.S. subprime market, sources in U.K. RMBS wonder if this shakedown will ripple across the pond to the non-conforming market. While the U.K. appears to have been shielded from any direct negative consequences thus far, some maintain that the market is no longer safe.

At a meeting on non-conforming U.K. RMBS sponsored by Societe Generale in London last Wednesday, senior credit research analyst Christopher Greener argued that while U.S. lenders are scaling back the LTV available to customers, particularly in lower FICO credit score bands, competition in the U.K. market is encouraging lenders to advance higher LTVs to these lower quality borrowers. According to Deutsche Bank research, U.K. mortgage lenders, like Northern Rock and the Royal Bank of Scotland, are now lending up to six times' borrower gross salary. Also, interest rates are up 75 basis points over the past year and at least one further hike is expected next month, mortgage payment behavior is very likely to weaken, Deutsche analysts said.

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