The study of regional differences in UK mortgage arrears and borrowers’ equity positions indicates that arrears continue to diverge between the north and south of the country.
In the first three months of 2011 S&P sampled 1.5 million securitised loans backing UK prime residential mortgage-backed securities and found that mortgage borrowers in the north of the country were 35% more likely to be in arrears than those in the south, up from 25% in Q2 2010.
Meanwhile 5% of mortgage in the sample were in negative equity, up from 3.6% nine months earlier with northern regions accounting for two-thirds of the increase.
S&P said they believed this was partly due to the divergence in underlying employment and housing market dynamics between the north and south of the country, and the government’s planned public spending cuts through 2015 could exacerbate this north-south divide.
Mark Boyce, credit analyst at S&P, said: “We believe the widening north-south gap in arrears is partly due to the significantly more robust employment trends evident in the south of the UK since the start of the recent downturn in 2007, compared with the trends in the north.”
“Our study also found that more mortgage borrowers in the north continue to be in negative equity, with northern regions accounting for about two-thirds of the overall rise in negative equity in the nine months to Q1 2011.
“We believe that the sluggish housing market in northern regions over recent quarters may be partly responsible for this rise.”
On the forthcoming fiscal austerity measures, Boyce said that given the north’s public sector jobs bias, S&P anticipates that unemployment in those regions and consequently arrears could escalate.
“Mortgage risk in the north could diverge even further if the UKs already fragile economic recovery falters,” he said.
