OREANDA-NEWS. Fitch Ratings says in a new report that UK residential mortgage arrears trends diverged in 1Q15.

Three-months plus (3m+) arrears in the prime sector fell 27% in 1Q15 to 1% of outstanding collateral balance. In comparison, redemption of two large portfolios from the Leek series, led to an artificial increase of 2.7% in late-stage arrears within the non-conforming sector. In the buy-to-let (BTL) sector the trend has been flat, with 3m+ arrears at 1.4%. With low interest rates likely to prevail for the rest of the year, Fitch does not expect a marked upward trend in arrears.

A fairly low volume of late-stage arrears has kept the pace at which properties are being taken into possession and their subsequent sales subdued. Coupled with a sustained increase in home prices, losses have remained limited across portfolios, while excess spread and reserve funds remain stable.

Prepayment rates remained broadly unchanged although a clear distinction still exists between prime and non-conforming borrowers and particularly those with post crisis-originated mortgages. Prime borrowers who took out mortgages after 2010 are best-positioned to take advantage of competitive market rates and are incentivised to do so following the end of their respective discounted/teaser rates.

Fitch's affordability indicators for the UK show that home price increases continue to outpace income growth, more so in London and the south-east than the north and the rest of the country. However, the agency expects the pace of this disparity to slow, as home price growth decelerates in London and the south east while the north picks up pace.

Fitch's 'Mortgage Market Index - United Kingdom' is part of the agency's quarterly series of index reports. It includes information on the performance of residential mortgages, predominantly from RMBS transactions, but also those held on bank balance sheets. The report sets the housing market against the macroeconomic background and provides commentary on emerging trends. The report is available at www.fitchratings.com or by clicking on the link above.

The data behind the report can be viewed in the RMBS Compare, an Excel-based tool for producing charts and comparisons of mortgage market indicators along with RMBS transaction performance.