A Moody’s report said in contrast, the perceived outlook for non-conforming or specialist securities like interest-only will suffer.
Affordability checks will improve credit performance because prime borrowers will be expected to offer proof of income, for example, de-risking the investments in contrast with those involving more specialist or non-conforming borrowers.
Sophia Velissaratou, a Moody’s associate analyst and a co-author of the report, said: “The new rules will be credit negative for UK non-conforming RMBS over the long term, as it will be more difficult for these weaker borrowers to take advantage of proposed waivers on affordability checks.”
She said: “As such, these borrowers will continue to have extremely limited refinancing options.”
Senior analyst, Jonathan Livingstone, added that lenders have already tightened underwriting criteria significantly reducing refinancing options for interest-only borrowers, but the setting of a concrete implementation date for the rules removes further short-term uncertainty.
