The research from Nottingham Trent University revealed that 78% of mortgages sold as securities over a nine-year period were held in longer-term fixed rate contracts, which are generally a less risky option for borrowers.
Longer-term fixed-rate deals tend to protect borrowers from fluctuations in interest rates, but leave lenders more exposed to these risks.
According to the study, which used official data to analyse long-term behaviours over a nine-year period, lenders may be more inclined to offer longer-term fixed rate mortgages to borrowers when these mortgages are sold on as securities because this reduces the lenders’ exposure to risk.
Nottingham Trent’s Professor Michael White, who co-authored the report, said: “Regulation of financial products such as mortgage backed securities is regarded as a key issue in the global financial crisis. Securitised products are argued to have had credit ratings that suggested they were lower risk than was actually the case.
“But it’s clear from this research that securitisation – providing it is tightly regulated – has the potential to provide borrowers with increased access to lower risk mortgages.
He added: “What’s also clear is that the UK mortgage market may be dominated by variable rate and short-term fixed rate mortgages because lenders make more money from these products, not because they are the consumer’s first choice of mortgage.”
For every 1% of profit a mortgage lender makes from a variable rate mortgage, the product’s market share increases by 18%, the study found. This is despite the data also suggesting that consumers prefer to take out longer-term fixed rate products.
Co-author of the report, Dr Alla Koblyakova, said the findings showed that securitisation not only increased liquidity in the market but had the potential to shift mortgage choices towards long-term fixed deals.
“In a market like the United Kingdom’s, where around 80% of residential mortgage debt is held in higher risk variable rate or short-term fixed rate contracts, this is a very welcome finding,” she said.
“A high level of variable debt is seen as a source of economic instability. Policymakers may wish, therefore, to consider the potentially beneficial role that securitisation can play in helping balance the UK mortgage market.”
