For the UK mortgage market as a whole an estimated 2 million loans are due to reset by the end of 2008, equivalent to approximately 17% of all mortgages outstanding, S&P says in Payment Shock Approaching For Borrowers In U.K. Nonconforming RMBS.
Looking at the U.K. nonconforming loans backing the RMBS transactions that we rate, we estimate that around £9 billion of fixed-rate loans are scheduled to reset by the end of 2008, representing 23% of total balances outstanding. A particularly large volume of resets—nearly £5 billion—look set to occur during the first half of 2008.
As rate increases filter through, borrowers are going to face increased repayments, which for some people may be unaffordable and will therefore feed through to higher repossessions levels. This is most likely in the case of the buy-to-let property owners, who are usually highly leveraged and look to rental costs to cover their interest payments, whilst looking to enjoy capital gains.
So why does the post title suggest delay buying? Repossessed housing stock is almost always sold at a discount to normal prices, mainly because quick sale is sought by the mortgage lender. Moreover, buyer demand will be weakened through higher interest rates, especially from buy-to-let quarters, thus easing competition for properties. In such a climate, it is inevitable that sellars, in some instances, will be forced to accept lower prices.
This might take 6-9 months to become evident but it looks one of the more probable outcomes following the turbulent summer.