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DBRS Morningstar - Impact of Rising Rates on UK Mortgages

LONDON, December 09, 2022--(BUSINESS WIRE)--The rapid rise of interest rates in the United Kingdom will translate into higher mortgages payments once these loans revise their rates. The increase of mortgage costs paired with the cost-of-living crisis can leave many borrowers facing affordability constrains and not able to service their mortgages. DBRS Morningstar analysed the loan-level information of almost 400,000 loans within 36 portfolios of securitised mortgages in order to assess how the rise of interest rates affects affordability ratios, which borrowers are the most vulnerable, and how many mortgages are expected to revise their rates in the short term.

Summary highlights include:

— Households within the lowest income segments are less likely to hold a mortgage, but those that do are currently paying higher rates and at a comparably worse affordability position that wealthier borrowers.

— Buy-to-let (BTL) mortgages are less likely to see their interest rates revised within the next two years; nevertheless, the prevalence of interest-only loans among BTL loans means that a rise in interest rates could easily double the servicing costs of BTL borrowers.

— While the current debt-to-income ratios are relatively low for most borrowers, the rise of interest rates will erode the financial position of many mortgage borrowers.

"Asset performance will likely deteriorate based on the gloomy economic outlook, and borrowers’ ability to refinance will depend on how high the interest rates rise. A sharp increase in rates could leave many borrowers unable to refinance given their resulting high debt-to-income ratios," said Alejandro Tendero, Assistance Vice President of European RMBS and Covered Bonds at DBRS Morningstar.

To view the full report, click here: https://www.dbrsmorningstar.com/research/407016/impact-of-rising-rates-on-uk-mortgages

The DBRS Morningstar group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(EU CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(UK CRA, NRSRO affiliate, DRO affiliate). For more information on regulatory registrations, recognitions and approvals of the DBRS Morningstar group of companies, please see: https://www.dbrsmorningstar.com/research/225752/highlights.pdf. The DBRS Morningstar group of companies are wholly-owned subsidiaries of Morningstar, Inc. © 2022 DBRS Morningstar. All Rights Reserved. The information upon which DBRS Morningstar ratings and other types of credit opinions and reports are based is obtained by DBRS Morningstar from sources DBRS Morningstar believes to be reliable. DBRS Morningstar does not audit the information it receives in connection with the analytical process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS Morningstar ratings, other types of credit opinions, reports and any other information provided by DBRS Morningstar are provided "as is" and without representation or warranty of any kind. DBRS Morningstar hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS Morningstar or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Morningstar Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS Morningstar or any DBRS Morningstar Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. No DBRS Morningstar entity is an investment advisor. DBRS Morningstar does not provide investment, financial or other advice. Ratings, other types of credit opinions, other analysis and research issued or published by DBRS Morningstar are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness, investment, financial or other advice or recommendations to purchase, sell or hold any securities. A report with respect to a DBRS Morningstar rating or other credit opinion is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS Morningstar may receive compensation for its ratings and other credit opinions from, among others, issuers, insurers, guarantors and/or underwriters of debt securities. DBRS Morningstar is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS Morningstar shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS Morningstar. ALL DBRS MORNINGSTAR RATINGS AND OTHER TYPES OF CREDIT OPINIONS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT https://www.dbrsmorningstar.com/about/disclaimer. ADDITIONAL INFORMATION REGARDING DBRS MORNINGSTAR RATINGS AND OTHER TYPES OF CREDIT OPINIONS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON https://www.dbrsmorningstar.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20221209005063/en/

Contacts

Dennis Ferreira
European.Communications@dbrsmorningstar.com