Consultant Zone

RMBS – is there hope on the horizon?

Bank deleveraging and cheap central bank funding schemes are constraining European securitisation volumes, and Standard & Poor’s Ratings Services believes that UK residential mortgage-backed securities (RMBS) issuance could fall again this year. That said, some specialised mortgage market segments – such as buy-to-let – have begun to slowly re-emerge, which could be mildly positive for the UK RMBS market.

The buy-to-let mortgage market has rebounded. Since 2009, many mainstream mortgage lenders have significantly tightened underwriting criteria, in particular on deposit requirements, but buy-to-let gross mortgage advances increased by 30% in the first quarter of 2012 compared with a year earlier. Advances in the rest of the market increased by less than 10%, according to the Council of Mortgage Lenders.

European securitisation issuance has fallen every year since 2008, as investors have withdrawn from the market and underlying bank lending has remained sluggish. However, the
UK is one of a few European countries where securitisation remains a substantial wholesale funding source for lenders – in particular, for mortgage originators.

Investor placed UK RMBS issuance reached about €37 billion in 2011, representing more than 50% of publicly placed European securitisation issuance. Despite UK mortgage lending volumes having fallen dramatically since 2007, securitisation issuance is again funding more than a fifth of loan originations.
The variety of UK lenders turning to RMBS placements post crisis also suggests that issuance volumes could pick up again. In 2011 and in the first half of 2012, five building societies debuted RMBS transactions.

Our own experience with a number of lenders who have securitised over the last few years tells us that there is an appetite to prepare for a more active market place. Recent examples include carrying out portfolio reviews, cleansing data and carrying out due diligence in advance of possible asset sales. On that basis, we think there may well be a feeling of optimism slowly creeping back into the market place.