Securitisation remains a mainstay of mortgage funding – Phoebus

The Financial Conduct Authority (FCA) and EU both support this funding mechanism as a healthy part of a lenders funding mix, however worldwide regulators will be keeping a keen eye on this market.

Of course, before wholesale funding came to the UK in the 1980’s, mortgage lending was funded almost in entirety by deposit book balances.

This is still the case for many building societies today.

We then saw the onset of the centralised lending market which acted as the launch pad for securitisation at scale in the UK, and it remained a major feature of worldwide funding until the global financial crisis started in 2007.

Securitisation regulations

Today, along with the launch of many new challenger banks, we see a very diverse mix of funding lines supporting loan originations.

The last few months have seen Aldermore and Northview complete successful securitisations, while Atom Bank kicked-off a £400m securitisation process in what it says it expects to be an ongoing source to “provide funding for long term sustainable growth” alongside its retail deposits.

The FCA has consulted on the new securitisation rules and the legislation that came into effect from 1 January 2019.

This outlines the general requirements for all securitisations in the EU as well as criteria and process.

As with much of the regulation that our market abides by, just because we are leaving the EU doesn’t mean it won’t apply here and we will be as affected as the other EU27.

This shouldn’t cause a slow down in the number of securitisations however, as it is intended to streamline the process.

Brexit concerns

While one can still only speculate on the effect that Brexit will have on this market, key here is confidence in the underlying book and borrowers’ ability to continue to make mortgage repayments.

Regulations brought in under the Mortgage Market Review, the increase in stress testing at point of sale and ongoing prudential regulation can only help boost the confidence of investors in the quality of mortgages underwritten in the UK.

However, it is recognised that Sterling may drop following Brexit and this could affect the numbers of transactions in the first half of 2019.

US Dollar backed deals should be less affected as a drop of Sterling against the dollar is not expected whichever way Brexit manifests itself post March 2019.