The UK securitisation market faces what is expected to be an interesting year ahead. With the Bank of England’s ("BoE") Term Funding Scheme ("TFS") drawing to a close in February 2018 thus ending a cheap source of funding for the country’s banks, UK residential mortgage-backed securities ("RMBS") and asset-backed securities ("ABS") markets are quietly celebrating.
Since the scheme was introduced in August 2016, it has been widely embraced by banks and building societies with loans made through the TFS totalling more than £103 billion1. Furthermore, according to the BoE, average rates on fixed and variable rate mortgages have fallen by approximately 30 basis points2. TFS and its predecessor, the Funding for Lending Scheme ("FLS") have provided the banks and building societies with cheap, medium-term funding since 2012. With all of that funding available, financial institutions have been less active in the RMBS and ABS markets and therefore issuance volumes from these traditional participants have decreased.
Assuming government policies remain unchanged, Maples Fiduciary is confident that the recent hike in base rates and the imminent cessation of TFS, as well as some welcome regulatory clarity, will encourage more issuers to tap the UK ABS and RMBS markets. In combination with the end of TFS, another reason to think that more issuers will come to market rests on the resources and investments certain originators have made in developing systems and processes for the flagging and reporting of asset pools in order to pledge them to the BoE under TFS. This infrastructure now gives them access to securitisation markets and ensures they are well placed to fulfil the necessary reporting obligations. As a result of these developments, we can expect issuance patterns to continue the growth trajectory seen in more recent periods into 2018 and beyond.
Maples Fiduciary is a market-leading provider of fiduciary services to structured finance vehicles, with offices in key jurisdictions around the globe. Our UK corporate and fiduciary services business has eight professionals based in London, with extensive experience in ABS, RMBS, CMBS and covered bonds programmes as well as other bespoke UK SPV solutions and the team administers a growing book of both public and private transactions. The team is supported by an extensive network of European-based professionals in our offices in Dublin, Luxembourg and the Netherlands, as well as colleagues in the Americas, Asia and the Middle East.