Understanding securitisation: What brokers need to know

The funds received for the selling of the asset are then used to originate new mortgages. Residential mortgage-backed securities (RMBS) are the most common type, although other assets such as car loans and credit card receivables can also be securitised.

The primary advantage of securitisation is improved liquidity for lenders, enabling them to recycle capital more efficiently. It also offers investors diversified assets with varying risk profiles. The price paid for the assets is determined by the quality in terms of arrears performance on the asset, as well as other factors such as ESG within the asset, underwriting quality and other areas. The asset is given a rating, with ‘AAA’ being the best quality, and the rating will reflect the price paid.

The securitisation process is complex and requires rigorous due diligence to understand asset quality and manage risk. Of course, regulatory oversight has significantly increased since the 2008 financial crisis, ensuring a more stable and transparent market, which is of benefit to all.

As of the end of 2024, European securitisation issuance reached €244.9bn, a 14.8% increase from €213.3bn in 2023. Notably, UK RMBS accounted for €33.8bn of the placed totals, underscoring the UK’s significant contribution to the European securitisation landscape (AFME).

Overall, the UK’s securitisation market is poised for continued growth, supported by strong issuance figures and active engagement from key financial players. Transactions this year by Enra, Keystone, Lendco, Nottingham Building Society and others underpin the importance securitisation has on the specialist and more general lending markets.

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With wholesale funding now being made more readily available to building societies, expect some product diversification and also increased volumes from the sector also.