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Delayed Precise securitisation signals return of volatility in funding markets, says MD

  • 24/07/2015
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Precise Mortgages' latest securitisation deal suffered a 10-day delay due to the uncertainty in Europe before the Greek referendum at the start of July on whether to accept a package of austerity measures in return for bailout funds.

Following the announcement of the no vote, the Precise securitisation deal and a transaction from Paragon were the first to be completed in Europe, according to a spokesman from Fitch Ratings.

But the effect of the crisis in Greece pushed up the cost of funds for Precise by 0.30%.

Managing director Alan Cleary said the outcome of the latest deal, which brings the lender’s total issuance since December 2013 to £1bn, was delayed as a direct result of the uncertainty created around the ‘surprise’ Greek referendum. But, he added, the significance of the swift completion after the vote showed investor confidence in the business.

He said it highlighted the precarious situation lenders were in if they are solely reliant on the securitisation markets.

“The 0.3% increase in the cost of funds will result in higher pricing, however, we also have retail deposits as a source of funding so our pricing also depends on what happens to rates more generally,” said Cleary.

“But lenders which are solely reliant on capital markets should be very nervous and should slow down lending as securitisation market looks volatile. Getting a deal away is tough even for lenders like Paragon and us so for the likes of Fleet and Foundation, for example, the world of funding has got a whole lot more difficult.”

Mark Carney’s indication that the Bank Base Rate will go up at the start of next year is likely to have a destabilising effect on swap rates, said Cleary, which will also in turn drive up mortgage costs for consumers.

In a statement from John Heron, MD of Paragon, on the completion of the lender’s sixth deal since September 2013 worth £300m, he said the transaction showed the strength of Paragon’s programme and depth of demand from sterling and euro investors.

“Given the recent turbulence in European bond markets, this continued support from the investor community underlines the quality of Paragon’s buy-to-let assets and the group’s position as a leading UK securitiser,” said Heron.

Paul Brett, director of business development, Foundation Home Loans, said: “While FHL is a start-up lender its parent Paratus AMC has over 12 years’ experience in this space with assets under management of approximately £3bn. We are confident with the strength of our funding and our strategy.”

Fleet Mortgages chief executive Bob Young said: “Alan is right in that if you’re a potential new lender looking to enter the UK market with a traditional warehouse funding line and securitisation model then the current situation with the capital markets will be of concern. Where Alan is wrong is in his understanding of where Fleet Mortgages’ funding comes from.

“We are funded by corporate clients of BlackRock and therefore we are not reliant on the UK capital markets at all. In that sense we are an innovative lender and have a unique relationship with BlackRock which means the situation with spreads widening on securitisations and the increased difficulty in getting these deals away, does not affect us one bit. Given our ability to bring new funding to the UK market we actually see this as a major opportunity.”

Kensington declined to comment on Cleary’s statement.

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