Brexit will curb UK mort­gage lend­ing and re­verse RMBS is­suance gains

Financial Mirror (Cyprus) - - FRONT PAGE -

Post-ref­er­en­dum un­cer­tainty will weigh on UK mort­gage lend­ing, par­tic­u­larly in the buy-to-let (BTL) sec­tor. This in turn will lower the is­suance of se­cu­ri­ties backed by res­i­den­tial mort­gages, said Moody’s In­vestors Ser­vice.

“With re­duced de­mand for credit and down­ward pres­sure on house prices, eco­nomic un­cer­tainty will likely re­verse pre­vi­ously pos­i­tive mar­ket con­di­tions for the UK mort­gage mar­ket, low­er­ing RMBS is­suance,” said Kam­ran Sabir, a Se­nior An­a­lyst at Moody’s.

The rat­ing agency said BTL prop­erty pur­chases will con­tract the most, given the dual im­pact of un­cer­tainty of fu­ture rental in­come growth and house price growth. This is com­bined with the in­creased cost due to the stamp duty changes for sec­ond homes, which came into ef­fect this April. These fac­tors in ag­gre­gate, will re­duce the de­mand for BTL prop­er­ties and there­fore mort­gage lend­ing in this sec­tor, low­er­ing BTL RMBS is­suance.

In­creased mar­ket volatil­ity and un­cer­tainty about the reg­u­la­tory frame­work post-Brexit may have re­duced the abil­ity of lenders to ac­cess the pub­lic RMBS mar­ket. Early in­di­ca­tors in the se­condary mar­ket show that Aaa spreads have widened most in the BTL and non-con­form­ing sec­tors. The spreads are likely to set­tle down over time, but at a higher han­dle, mak­ing se­cu­ri­ti­sa­tion less eco­nom­i­cal.

The first half of 2016 saw strong vol­umes and the num­ber of newly is­sued rated res­i­den­tial mort­gage-backed se­cu­ri­ties dou­bled year-on-year. Pri­vate eq­uity owned lenders used se­cu­ri­ti­sa­tion to fund mort­gage lend­ing and port­fo­lio pur­chases, is­su­ing five trans­ac­tions, while is­suance from tra­di­tional lend­ing banks fell to only 12% of all trans­ac­tions in H1 2016. Most no­tably, Towd Point Mort­gage Fund­ing 2016-Gran­ite 1 plc from US eq­uity firm Cer­berus was the largest RMBS deal for a decade.

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