UK's mortgage market finally begins to thaw

Published 28th Oct 2009

Britain's mortgage financing market appears to be thawing.

Nationwide yesterday managed to flog a bond that was backed by home loans.

The building society issued £3.5billion security to investors in a sale that was more than two times oversubscribed.

The market for residential mortgage-backed securities - worth £2trillion in Europe - came to a halt last year after the sub-prime collapse prompted investors to flee property-linked financial products.
House prices

The Nationwide sale follows a £4bn transaction by Lloyds last month, the deals suggesting investors are becoming more confident in the prospects for the property market

The bonds are comprised of repackaged mortgages and in recent years became a central plank of mainstream banks' funding strategies.

Banks sell the bundles of mortgages in order to transfer default risk to investors and reduce the amount of capital that they have to hold as a buffer against potential losses.

Central bank efforts to coax the market back to life have until recently borne little fruit, amid continued fears about the safety of the housing market and bank finances.

However, yesterday's Nationwide sale follows a £4billion transaction by Lloyds Banking Group last month.

The deals suggest that investors are not only becoming more confident in the banking system, but also in the prospects for the property market.

House prices have recorded gains for five months, amid a revival in mortgage approvals.

Values rose by 0.9 per cent in September, according to Nationwide data, and are now at the same level as prices in 2008.

Nationwide's issue will be issued in three portions, one of which is to be used as collateral for a loan from JP Morgan.

Source: ' Daily Mail '

View All Latest Articles