Fitch Ratings has revised its UK housing and mortgage outlook from Stable/Positive to Stable in light of the UK’s referendum on leaving the EU, to reflect increased uncertainty around the UK housing market and economic fundamentals created by the vote.
A Stable sector outlook will continue to support our Stable RMBS ratings Outlook.
UK house price growth and mortgage performance have exceeded our expectations in 1H16. However, the vote to leave the EU has potentially put some of the supportive macroeconomic factors we identified in January, such as strong growth, in jeopardy (Fitch reduced its real GDP growth forecasts for 2016-2018 following the referendum), and house price appreciation and mortgage lending growth are likely to slow. Early indicators suggest that increased economic uncertainty is filtering through to the housing market.
The Bank of England’s policy response will support mortgage performance and keep rates on new lending low over the next one to two years. Arrears are likely to remain low for the short term and certainly through 2H16. Affordability stress-testing rules introduced in 2014 should help ensure that borrowers are resilient to future rate raises.
The buy-to-let (BTL) market has already been affected by higher stamp duty, which saw a very high number of completed purchases in March, immediately before the raise took effect, helping drive a sharp increase in gross mortgage lending overall. But BTL demand could be hit if the prospect of Brexit results in a fall in net migration and/or a notable economic slowdown in London and the South East, to which BTL RMBS pools typically have higher exposure. Upcoming changes to tax relief for landlords and moves by a number of lenders to increase their Interest Coverage Ratio requirements may also hamper BTL growth.
