LBG sold over £4bn worth of residential mortgage-backed securities (RMBS) in the biggest deal to tap the wholesale money markets since the credit crunch started in 2007.
New bonds, backed by more than 513,000 AAA-rated, prime UK residential mortgages, with an average LTV of 68%, were snapped up by ‘real money’ investors, including pension funds and managed funds.
The pricing of the deal was very attractive: one tranche was 170 points over Euribor and the rest were 180 points over Libor – offering investors a return about 20 times greater than they could have achieved before the credit crisis, when a typical deal would offer up to 20 points over Libor.
“We are extremely pleased with the market reaction – we believe this represents an important step towards reopening the European securitisation markets,” said spokesperson Leigh Calder. “It widens the funding options across the whole group.”
“This is certainly a positive development for the mortgage market,” said Ray Boulger, senior technical manager at John Charcol.
“The wholesale money markets have reopened, giving lenders an alternative source of funding to the retail (savings) markets. I would expect to see other lenders following suit, which could inject some much needed competition into the market.”
Boulger said it was not altogether surprising that the securitisation was oversubscribed, as the book runner would have ensured there was plenty of support for the deal at the right price – and adjusted the price accordingly.
“But you could argue the very fact that investors want to put their money into residential mortgage backed securities does represent a vote of confidence in the housing market,” he added.
“The success of this deal will doubtless help to build investor confidence, but it doesn’t fix the market in one go,” warned Tony Ward, chief executive of Home Funding Limited.
“I would love to see the funds raised passed on to consumers in the form of more mortgage lending, but in reality, the money could go anywhere.”
Calder declined to comment on whether the increase in funding sources would translate into greater availability of mortgages from Lloyds Banking Group, or a decrease in the cost of its homeloans.
“We are not talking about a return to the cheap funds of the past. But it is a step in the right direction,” he said.
