-

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

LONDON--(BUSINESS WIRE)--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.

Recent Publications

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

Contacts

Hrishikesh Oturkar, Director
+44 20 8148 1070
hrishikesh.oturkar@kbra.com

Kali Sirugudi, Managing Director
+44 20 8148 1050
kali.sirugudi@kbra.com

Media Contact

Matt Turner, Associate Director
+353 1 588 1231
matt.turner@kbra.com

Business Development Contact

Miten Amin, Managing Director
+44 20 8148 1002
miten.amin@kbra.com

Kroll Bond Rating Agency, LLC

Details
Headquarters: New York City, New York
CEO: Jim Nadler
Employees: 400+
Organization: PRI

Release Versions

Contacts

Hrishikesh Oturkar, Director
+44 20 8148 1070
hrishikesh.oturkar@kbra.com

Kali Sirugudi, Managing Director
+44 20 8148 1050
kali.sirugudi@kbra.com

Media Contact

Matt Turner, Associate Director
+353 1 588 1231
matt.turner@kbra.com

Business Development Contact

Miten Amin, Managing Director
+44 20 8148 1002
miten.amin@kbra.com

Social Media Profiles
More News From Kroll Bond Rating Agency, LLC

KBRA Assigns Preliminary Ratings to BBCMS 2026-5C41

NEW YORK--(BUSINESS WIRE)--KBRA is pleased to announce the assignment of preliminary ratings to 13 classes of BBCMS 2026-5C41, a $533.6 million CMBS conduit transaction collateralized by 33 commercial mortgage loans secured by 82 properties. The collateral properties are located throughout 23 MSAs, of which the three largest are New York (27.5%), Austin (6.6%) and Tampa (6.0%). The pool has exposure to all major property types, with four types representing more than 10.0% of the pool balance: m...

KBRA Assigns AA+ Rating to Various State of Connecticut General Obligation Bonds; Affirms Rating for Parity Bonds

NEW YORK--(BUSINESS WIRE)--KBRA assigns a long-term rating of AA+ to the State of Connecticut: General Obligation Bonds (2026 Series A); General Obligation Refunding Bonds (2026 Series B); and, Taxable General Obligation Bonds (2026 Series A). KBRA additionally affirms the long-term rating of AA+ for the State's outstanding General Obligation Bonds. The rating Outlook is Stable. Key Credit Considerations The rating actions reflect the following key credit considerations: Credit Positives State...

KBRA Assigns AA- Rating with Stable Outlook to Canutillo ISD, TX Unlimited Tax Bonds Series 2026

NEW YORK--(BUSINESS WIRE)--KBRA assigns a long-term rating of AA- to the Canutillo Independent School District (the District), Texas, Unlimited Tax School and Building and Refunding Bonds, Series 2026 (the 2026 Bonds). Concurrently, KBRA affirms the AA- rating for the District's outstanding unlimited tax bonds. The Outlook is Stable. Proceeds of the 2026 Bonds will finance the construction of school facilities, refinance certain outstanding Bonds of the District, and fund the costs of issuance....
Back to Newsroom