In a report published today, the ratings agency says 15 per cent of the value of mortgage loans in UK prime residential mortgage backed securities master trust programmes are in negative equity.
The agency expects this figure to increase to 34 per cent of all prime mortgages if house prices fall in line with its expectations of a 30 per cent house price decline peak to trough.
Fitch found that Northampton, Nottingham and Derby are the worst affected cities, with the East Midlands having 15.1 per cent mortgages in negative equity.
Fitch head of RMBS for UK and Ireland Alastair Bigley says: “Amongst the loans in our analysis, which constitute nearly 25 per cent of all outstanding UK prime mortgages, approximately 270,000 borrowers are in negative equity.
“Of the 2.7 million prime mortgage loans totalling £263bn securitised through RMBS, more than £39bn of loans are in negative equity and this figure will rise further as house prices continue to fall.”
Fitch RMBS ratings has already factored in its 30 per cent peak to trough house price decline prediction within all its RMBS ratings, so it says these latest findings will not result in any negative rating actions.
Fitch European director in RMBS team Ketan Thaker says: “Borrowers with equity in the property have options available to them in case of financial distress that borrowers in negative equity do not, for example sale of property, remortgaging, better availability and pricing of products, and the withdrawal of equity to fund temporary cash shortage, which could help avoid foreclosure.”
Fitch estimates that Northern Rock’s master trust RMBS programme, Granite, has 32 per cent of loans in negative equity while Barclay’s Gracechurch pool, only has 2 per cent of loans in negative equity.
Bigley adds: “Even assuming that house prices see a modest recovery from their lowest levels, most RMBS transactions are likely to have a sizeable proportion of borrowers in negative equity for some time to come.”