Big First-Time Buyer Concentrations Reflected in Higher ESG Relevance Scores for UK RMBS
Fitch Ratings-London/Paris-21 March 2023: The ESG Relevance Score (ESG.RS) of ‘4’ for the Human Rights, Community Relations, and Access & Affordability general issue applicable to six RMBS transactions in the United Kingdom (UK) is a reflection of the materially high concentration of first-time buyers (FTB) included in the underlying residential loan portfolios, Fitch Ratings says. This is deemed to have an impact on the transaction ratings, together with other factors.
For each of the transactions listed below, the portfolios include a concentration in loans originated to FTBs (with little- to-no-seasoning) of greater than 50%; significantly above the 20%-30% concentration typically seen across rated prime UK RMBS pools.
Pavillion Mortgages 2022-1 PLC
Pavillion Mortgages 2021-1 PLC
Blitzen Securities No.1
Syon Securities 2020-2 DAC
Syon Securities 2020 DAC
Syon Securities 2019 DAC
In the UK, given their weaker credit profile, Fitch considers FTBs to have a higher foreclosure risk than other borrowers and typically applies a 1.1x adjustment to the foreclosure frequency (FF) of such loans. Where their concentration in a portfolio is analytically significant, Fitch applied a higher FF adjustment (of 1.4x), with the higher concentration deemed to affect the transactions' credit risk.
Lending to FTBs – who usually have lower average income and smaller deposits – increases the number of households that can gain access to the property ladder. This is viewed as enhancing the accessibility of home ownership in the UK.
Although Fitch does not see analytically significant concentrations of loans originated to FTB across rated RMBS transactions in other EMEA jurisdictions, APAC or North American countries, such exposures would typically be expected to worsen the credit risk for transactions. Where this is deemed to have an impact on the transaction ratings together with other factors, it would therefore be reflected in an elevated ESG.RS for the Human Rights, Community Relations, and Access & Affordability general issue.
Contact:
Cristina Pagani
Director – RMBS
+44 20 3530 2612
Fitch Ratings Ltd
30 North Colonnade, Canary Wharf, London, E14 5GN
Will Rossiter
Director, Enhanced Analytics – Structured Finance
+33 1 4429 9147
Media Relations: Athos Larkou, London, Tel: +44 20 3530 1549, Email: athos.larkou@thefitchgroup.com
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