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MOODY’S: UK NON-CONFORMING MORTGAGEES RESILIENT TO EXPECTED INTEREST RATE INCREASES
According to Moody’s Investors Service, the low interest rate environment post-2009 has benefitted non-conforming borrowers and Moody’s analysis suggests that this market segment will be resilient to the moderate interest rate rises that the rating agency forecasts.
The report titled “Expected Interest Rate Increases Will Not Affect UK Non-Conforming Mortgagees” is now available on www.moodys.com.
“Our model predicts that a cumulative interest rate increase of 1.0%, which we do not expect until Q1 2016, will only lead to an 0.9% increase among those borrowers not already in arrears, experiencing negative monthly cash flows after mortgage servicing and living expenses have been taken into account. Even with a 3.0% rate increase, only 4.0% more borrowers would face such payment problems”, said Jonathan Livingstone, Moody’s Vice President and Senior Analyst. “However, our model also shows that borrowers who purchased or refinanced their property at the top of the market are at a higher risk from interest rate increases compared with those who financed their property earlier. Borrowers from 2007/2008 are over 50% more likely than average to suffer negative cash flow in such circumstances”, adds Mr Livingstone.
Moody’s base case scenario assumes that borrowers are able to reduce their discretionary spending to bring their average weekly household expenditure (excluding mortgage costs) in line with the Office of National Statistics average of around £500 a week. Should this not prove to be the case, larger numbers of borrowers would be affected? For example, the proportion affected by a 1.0% rate increase rises from 0.9% to 1.5% if weekly household expenditure is instead capped at £800 a week.
Moreover, Moody’s base case assumption is that self-certified borrowers’ income at mortgage origination was not materially different from that stated in their application form. However should income amounts have been over stated a larger proportion of borrowers will be affected? For example, if the true income was 30% lower than stated, the proportion affected by a rate increase of 1.0% rises from 0.9% to 1.4%.
Finally, should both large proportions of borrowers be unable to reduce their discretionary spending so that their average weekly household expenditure, excluding mortgage costs, is in line with the ONS average and self-certified income amounts prove to have been materially over-stated, significantly larger numbers of borrowers will be affected. For example, in the case that expenditure is capped at £800 a week and the true income was 30% lower than stated, the proportion affected by a rate increase of 1.0% rises from 0.9% to 1.9%.
According to Moody’s forecasts, the Bank of England will maintain interest rates at 0.5% for another 12 months and the level will increase only gradually after that. The continuing low interest rate environment will help to keep UK Non-Conforming Residential Mortgage Backed Securities performance resilient, despite the increased cost of living and tighter credit conditions compared with when many of the mortgages were originated.
Additionally, Moody’s expect that the strengthening UK economy will increase discretionary household income in 2014 and 2015 as (1) forecast GDP growth will lead to upward momentum on salaries and ease some of the inflationary pressures on living costs; (2) the projected gradual fall in unemployment will mean households are at lower risk of an income shock through job loss; and (3) the more buoyant housing market and improved credit conditions will help some borrowers in difficulty to either sell their property, or refinance their mortgage to a better rate.
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Oil set for steady gains as economies shake off pandemic blues – Reuters poll
By Sumita Layek and Bharat Gautam
(Reuters) – Oil prices will stage a steady recovery this year as vaccines reach more people and speed an economic revival, with further impetus coming from stimulus and output discipline by top crude producers, a Reuters poll showed on Friday.
The survey of 55 participants forecast Brent crude would average $59.07 per barrel in 2021, up from last month’s $54.47 forecast.
Brent has averaged around $58.80 so far this year.
“Travel and leisure activity look set to catch up to buoyant manufacturing activity due to the mix of stimulus, confidence, vaccines, and more targeted pandemic measures,” said Norbert Ruecker of Julius Baer.
“Against these demand dynamics, the supply side is unlikely to catch up on time, leaving the oil market in tightening mode for months to come.”
Of the 41 respondents who participated in both the February and January polls, 32 raised their forecasts.
Most analysts said the Organization of Petroleum Exporting Countries and allies (OPEC+) may ease current output curbs when they meet on March 4, but would still agree to maintain supply discipline.
“With OPEC+ endeavouring to keep global oil production below demand, inventories should continue falling this year and allow prices to rise further,” said UBS analyst Giovanni Staunovo.
Oil demand was seen growing by 5-7 million barrels per day in 2021, as per the poll.
However, experts said any deterioration in the COVID-19 situation and the possible lifting of U.S. sanctions on Iran could hold back oil’s recovery.
The poll forecast U.S. crude to average $55.93 per barrel in 2021 versus January’s $51.42 consensus.
Analysts expect U.S. production to rise moderately this year, although new measures from U.S. President Joe Biden to tame the oil sector could curb output in the long run.
“A structural shift away from fossil fuels” may prevent oil from returning to the highs of previous decades, said Economist Intelligence Unit analyst Cailin Birch.
(Reporting by Sumita Layek and Bharat Govind Gautam in Bengaluru; Editing by Arpan Varghese, Noah Browning and Barbara Lewis)
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Japan’s jobless rate seen up in January due to COVID-19 emergency measures – Reuters poll
TOKYO (Reuters) – Japan’s jobless rate is expected to have edged up in January as service industry businesses suffered renewed restrictions on movement to fight spread of the coronavirus in some areas, including Tokyo, a Reuters poll of economists showed on Friday.
While industrial production activity picked up in Japan, emergency curbs rolled out last month such as asking restaurants to close early and suspending the national travel campaign hurt the jobs market, analysts said.
The nation’s unemployment rate likely rose 3.0% in January, up from 2.9% in December, the poll of 15 economists found.
The jobs-to-applicants ratio, a gauge of the availability of jobs, was seen at 1.06 in January, unchanged from December, but stayed near September’s seven-year low of 1.03, the poll showed.
“As the impact from the coronavirus pandemic prolongs, it is hard for firms, especially the service sector, to expect their business profits to improve,” said Yusuke Shimoda, senior economist at Japan Research Institute.
“So, their willingness to hire employees appear to be subdued and it is difficult to see the jobs market recovering soon.”
Some analysts also said the government’s steps to support employment and existing labour shortages will likely prevent the jobless rate from worsening sharply.
The government will announce the labour market data at 8:30 a.m. Japan time on Tuesday (2330 GMT Monday).
Analysts expect the economy to contract in the current quarter due to the emergency measures to counter the spread of the disease.
(Reporting by Kaori Kaneko; Editing by Simon Cameron-Moore)
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China’s economy could grow 8-9% this year from low base in 2020 – central bank adviser
BEIJING (Reuters) – China’s gross domestic product (GDP) could expand 8-9% in 2021 as it continues to rebound from the COVID-19 pandemic, Liu Shijin, a policy adviser to the People’s Bank of China, said on Friday.
This speed of recovery would not mean China has returned to a “high-growth” period, said Liu, as it would be from a low base in 2020, when China’s economy grew 2.3%.
Analysts from HSBC this week forecast that China would grow 8.5% this year, leading the global economic recovery from the pandemic.
If 2020 and 2021’s average GDP growth is around 5%, this would be a “not bad” outcome, said Liu, speaking at an online conference.
China is set to release a government work report on March 5 which typically includes a GDP growth target for the year.
Last year’s report did not include one due to uncertainties caused by the coronavirus. Reuters previously reported that 2021’s report will also not set a target.
(Reporting by Gabriel Crossley and Muyu Xu; Editing by Sam Holmes and Ana Nicolaci da Costa)
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