Homeowners in the United Kingdom, much like in the United States, are encountering obstacles to refinance as credit largely remains on lockdown and underwriting standards remain tight among mortgage lenders. The occurrence of refinancings takes effect within securitizations as loans are "prepayed" or considered paid in full. The loan essentially disappears from the security although it still exists in a different form and may end up in a new security. A reduction in the prepayment rate of a security reduces the speed at which a trust declines in size. It slows the rate at which credit enhancement can accumulate and may cause certain classes of notes to repay less rapidly than expected and potentially extend beyond their step-up dates in the absence of refinance, according to Fitch Ratings. But despite a decline in prepayments within UK residential mortgage-backed securities (RMBS) during the past 18 months, ratings on transactions issued from the 12 Fitch-rated UK prime master trust programs are unlikely to be negatively impacted on account of prepay speeds. "Fitch's ratings address the repayment of principal in full by the legal final maturity and as such are unlikely to be affected by a slow down in the prepayment rate given that the majority of bonds have long-dated legal finals," said Francesca Zwolinsky, director on Fitch's UK RMBS team. Fitch applied a stress test to the programs, calculating the probable effect of various prepayment speeds on the performance of the programs. Most notes repaid by their maturity dates without incurring principal losses. "The prepayment rates in the Arkle and Permanent programs have declined to the extent that insufficient principal has been generated to redeem a number of notes in full," Fitch said in a report Thursday. "However ... the sponsors of these two programs have supported their structures and injected cash into the trusts to ensure the bonds are redeemed on time." The decline in loan redemptions since the beginning of '08 are most apparent in non-conforming programs and several deals involving greater-than-average high loan-to-value mortgages, Fitch noted. "This emphasises the difficulty that these borrowers are having in refinancing following the widespread tightening of underwriting criteria and, in some cases, the complete withdrawal of these mortgages from several lenders' product ranges," Zwolinsky said. In June, Fitch noted a trend among lenders that offered more favorable rates to borrowers with at least 25% equity in the property. About 50% of all loans in Fitch-rated master trust programs bore too little equity to qualify for these rates. Write to Diana Golobay.