The Financial Service Authority’s proposals in its Mortgage Market Review could leave many borrow- ers unable to remortgage due to stringent affordability and income verification tests, says Moody’s.
The ratings agency expects to see higher defaults and possible losses in the sub-prime market if the regulator’s proposals are implemented.
Moody’s says it is particularly concerned about borrowers in negative equity or with adverse credit, and those who have self-cert or interest-only loans.It believes these borrowers will be unable to refinance if they can’t pass the stringent tests proposed.
In a report on the subject Moody’s states: “When interest rates start to increase and borrowers’ capacity to make mortgage payments becomes endangered, their inability to remortgage could lead to rising arrears levels, higher defaults and an increase in back-end losses in non-conforming securitisations.”
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