Fitch last week published a draft exposure showing updated elements of its loss estimation criteria on UK residential mortgage loan pools. It is also considering cutting its long-term default expectations for prime mortgages due to improved macroeconomic outlook and mortgage performance being in line with expectations. The agency proposes applying the sustainable loan to value ratio (sLTV) to predict defaults instead of the original loan to value (OLTV). The sLTV shows the current loan balance against Fitch's estimated sustainable house price (SHP) level. Fitch is contemplating this change as it "identified that sLTV is a stronger predictor of default probability for the UK market than OLTV, based on regression analysis of performance data for 2.9m UK mortgages."
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