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KBRA Releases Research – Extension Risk in UK Seasoned Interest-Only Mortgages

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KBRA releases research that examines the UK past-term interest-only (PTIO) mortgage population, including drivers of post-maturity behaviour and implications for residential mortgage-backed securities (RMBS) cash flow timing. PTIO mortgages are interest-only (IO) loans that have reached maturity without repaying the principal balance. These loans are gaining prominence as legacy pre-global financial crisis (GFC) IO cohorts mature. In UK RMBS, seasoned IO loans represent approximately 4% of total collateral and roughly 75% of seasoned nonconforming collateral (around GBP18 billion).

Key Takeaways

  • PTIO is primarily a timing risk, rather than an immediate credit shock. As of 2H 2022, approximately 22,000 IO and part and part mortgages were recorded as past maturity, although maturity drift is likely broader due to term extensions.
  • A meaningful maturity wave is approaching. Nearly one million IO and part and part mortgages remain outstanding, with peak maturities in 2031-2032 (around 90,000-95,000 loans per year).
  • Observed data indicates a persistent, measurable post-maturity tail. In KBRA’s dataset of nearly 6,000 loans, 60.3% redeemed on or before maturity, while approximately 31.6% resolved post-maturity, and 8.1% remain outstanding.
  • Borrower constraints, rather than equity, drive cash flow timing. Despite a median loan-to-value (LTV) of approximately 37%, borrower age, affordability, and product limitations can delay refinancing or sale. The median IO borrower is 56 years old, and a substantial portion will reach maturity near retirement age.
  • For UK RMBS, slower post-maturity redemptions—particularly in higher-LTV loans and flats—can extend weighted average life (WAL), delay credit enhancement build, and concentrate risk in the transaction tail, even where ultimate losses remain limited. These effects are more pronounced in regions with weaker price recovery.
  • While regulatory changes have eased switching barriers, participation and eligibility constraints limit their effectiveness, leaving some borrowers unable to refinance and increasing the likelihood of maturity drift.

Click here to view the report.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1014625

KBRA research on UK PTIO mortgages, analyzing post-maturity behaviour and RMBS cash flow, with focus on extension risk

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Hrishikesh Oturkar, Director
+44 20 8148 1070
[email protected]

Kali Sirugudi, Managing Director
+44 20 8148 1050
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+353 1 588 1231
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+44 20 8148 1002
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