Investors are finding UK RMBS attractive
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The crises stalking the eurozone are causing the funding markets to become nervous about the threat of banks defaulting.
Rob Thomas, senior policy adviser, Council of Mortgage Lenders
But in my presentation at our annual conference this month I discussed something positive for the future of funding. It was about residential mortgage-backed securities.
Despite being painted as a pantomime villain, UK RMBS were not responsible for the credit crunch and are now being seen as more attractive than unsecured lending due to the underlying security of the collateral.
If these were the US variety I would agree that investors should be wary. Almost 45% of US RMBS have been downgraded and a further 5% or more have defaulted. But in the UK they have performed solidly, with less than 5% downgraded and none defaulting.
So it is no surprise that in the wake of regulatory and economic nervousness, the cost of borrowing on secured products such as RMBS is cheaper than unsecured. So the UK funding market could be seen as a relative safe haven.
Mortgage assets have performed well through the recession. Although RMBS were seen as problematic when the credit crunch hit, we now know it was a lack of understanding about the differences between the UK and US products that caused this, rather than a lack of quality.
There have been a few issuances in the market recently and RMBS, along with covered bonds, appear set to stay attractive to investors.
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