Subprime mortgage risk reappears in UK Financial instruments blamed for sparking the global economic crisis are set to default in far greater numbers as hard up UK homeowners fail to meet their mortgage repayments. Residential mortgage-backed securities - which pool revenue streams from home loans - backed by interest-only mortgages will be disproportionately hit by rising interest rates over the next 20 years, according to projections by Moody's, the rating agency. Higher mortgage costs will affect borrowers" ability to save and pay their mortgage principal when it becomes due. "Approximately half the nonconforming [subprime] interest-only mortgage loans mature between 2020 and 2030 [and] there is a long-term risk the borrower won't be able to pay the principal," said Annabel Schaafsma, managing director at Moody's. The issue is, will they have sufficient savings to make that payment . . . but these borrowers have had some sort of payment problem in the past. At least one-third of borrowers will have reached retirement age by the time their mortgages mature, Moody's adds in a report. The UK's subprime RMBS market - comprising borrowers who have had past credit trouble - is worth about £20bn, compared with a larger RMBS market without bad credit history of £216bn. Two-thirds of the UK's subprime RMBS market, most of which was issued in the boom years between 2005 and 2007, is made up of interest-only mortgages. Historically RMBS backed by subprime lending have been financed through securitisation, although there has been little fresh UK issuance since the collapse of the US subprime mortgage market helped spark a global financial crisis in 2008. But stigma surrounding RMBS and a lack of economic growth generally has contributed to a decline in European issuance, from a post-crisis peak of $63.1bn in 2011 to $43bn. That compares to $270.6bn in 2007. However, earlier this year central bankers and regulators gave RMBS a formal stamp of approval by allowing highly rated forms to be included in liquidity buffers that banks will have to hold to prevent future financial turmoil. Even if some RMBS now have a seal of approval, there are other disincentives for banks to drive the sector's revival. Post 2008-09, lenders are now required to keep some "skin in the game" by holding a junior piece of mortgage-backed securities. Critics allege that regulators have allowed all RMBS to be tarred with the same brush.