Independent review and analysis

Asset Sales Continue to Stimulate Market

The buoyant market continues, for the private equity firms who use securitisation as one of their funding sources.

High street banks, driven by capital realignment, remain focussed on offloading mortgage portfolios originated in the run up to the financial crisis. Additionally, the UK Government is pressing ahead with its ongoing programme of asset disposals from the lenders it bailed out.

The Bank of England’s fresh stimulus measures announced in August had a detrimental effect on more conventional Residential Mortgage-Backed Security funding but interest in the £16bn Bradford & Bingley Buy-to-Let mortgage book currently for sale by UKAR is still high. Furthermore, given the structure of a number of the private equity funds, we should also start to see layers of refinancing, restructuring and realisations being undertaken – creating more activity and opportunity.

Whilst most of the loans currently being marketed pay fine margins, sophisticated structuring and syndication techniques allow value to be extracted even in a low interest rate environment. There is, however, little room for error and it continues to be essential for detailed due diligence to be undertaken on all portfolios both before and after they come to the market. This is especially true where the buyer intends to refinance all or part of the acquisition.

On a positive note, proposed draft legislation from HMRC will extend the existing corporate tax treatment of securitisation companies by 20 years. This will remove some uncertainty and is expected to act as further stimulus to the market.

Securitisation continues to play an important part in the funding of UK residential mortgages. However, the stock of legacy mortgages is shrinking and could be seen as a signal of an increasing and inevitable move towards origination.

What is clear is that the activity within the mortgage market continues to highlight the need and importance of ensuring that all risks are fully analysed and considered by all parties at every stage of the process.

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