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Lower-for-longer interest rates and flat house price inflation predicted by Moody’s

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  • 20/01/2020
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Lower-for-longer interest rates and flat house price inflation predicted by Moody’s
Historically low interest rates, longer-term fixed mortgages and increased landlord costs due to tenant-friendly regulations are some of the themes which will shape the mortgage market in 2020, Moody’s has predicted.

 

The credit rating agency’s report Structured finance – UK 2020 Outlook, also predicted house price inflation would remain flat at around 0.8 per cent for “several years” as GDP is expected to slow to one per cent over the year due to Brexit uncertainty and risks. 

 

Specialist risks 

The financial firm suggested while lower interest rates would boost affordability, longer-term low rates would lead to “weaker origination and looser underwriting” in specialist areas of the sector. 

It also said the loan credit quality of new deals made by specialist lenders and challenger banks would be weaker than that of the mainstream sector as such lenders target borrowers who require bespoke underwriting. 

Moody’s suggested the shift towards portfolio landlords served by specialised lenders in the buy-to-let market would continue and result in portfolio concentration in securitised pools.  

It also said incoming regulations such as minimum energy efficiency standards and the Fitness for Human Habitation Act would increase costs for landlords, causing the credit rating for UK buy-to-let residential mortgage-backed securities to weaken. 

 

Digital changes 

Moody’s said newcomers to the market would “increasingly use technological innovation” in order to compete for market share. As well as this, it predicted the use of automated valuation models (AVMs) in the prime space would increase and said mainstream lenders would be “rapidly digitalising” services. 

Greg Davies, VP senior research analyst at Moody’s, said: “Credit conditions will remain stable due to low unemployment and interest rates, while Brexit challenges will continue to erode consumer confidence and dampen housing activity. 

“All of our UK collateral forecasts are negative, but arrears and losses will rise only slightly from a low level, with little effect on transaction performance.” 

 

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