Rating agency Standard & Poor’s has warned that plans to tackle the fiscal deficit could weaken UK residential mortgage-backed securities (RMBS).

In a new report the credit rating agency said that any combination of falling house prices, more limited credit and rising interest rates would put pressure on already stretched borrowers, potentially weakening RMBS.

The agency argued that this could hold back further recovery of the UK securitisation market, which was boosted recently by reports of a £4.7 billion mortgage-backed bond issue by the Royal Bank of Scotland. The market all but collapsed following the crisis affecting US asset-backed securities in 2007. In the last three years, the UK market has made only a limited recovery, even though European asset-backed deals have suffered less than one-tenth of the defaults of their US counterparts.

Prospects for UK securitisation markets will come under the scrutiny at the CML’s forthcoming annual funding conference on 5 October. Among the topics covered will be the outlook for funding markets in the coming years, regulation, the transparency of RMBS and developments in US securitisation.