Can securitisation rebalance the UK mortgage market?

Can securitisation rebalance the UK mortgage market?

New research by Nottingham Trent University has found that securitisation - the much maligned practice of investors buying pools of debt as secured assets - enables mortgage lenders to offer an increased number of lower risk, long-term fixed rate mortgages.

A study of long-term market trends by Dr Alla Koblyakova and Professor Michael White, of the university’s Real Estate Economics and Investment Research Group, shows that 78 per cent of mortgages sold as securities over a nine year period were held in longer-term fixed rate contracts.

Dr Koblyakova, of the School of Architecture, Design and the Built Environment had this to say: “This is an important finding as it shows that securitisation not only increases liquidity in the market but has the potential to shift consumer mortgage choices toward long-term fixed rate mortgage debt.

In a market like the United Kingdom’s, where around 80 per cent of residential mortgage debt is held in higher risk variable rate or short-term fixed rate contracts, this is a very welcome finding. A high level of variable debt is seen as a source of economic instability. Policymakers may wish, therefore, to consider the potentially beneficial role that securitisation can play in helping balance the UK mortgage market.”


Variable rate and short-term fixed rate mortgages are more risky for borrowers as they leave them more vulnerable to financial shocks, such as interest rate increases. By contrast, longer-term fixed rate deals protect borrowers from such increases, but leave lenders more exposed to these risks.

Dr Koblyakova believes lenders may be more inclined to offer longer-term fixed rate mortgages to borrowers when these mortgages are sold on as securities because this reduces the lenders’ exposure to risk.

The study – which was published recently by SAGE Publishing in research journal Urban Studies - also found that variable rate mortgages were more profitable for lenders than long-term fixed rate mortgages by as much as 1.6 per cent.

For every one per cent of profit a mortgage lender makes from a variable rate mortgage, the market share of variable rate mortgages increases by 18%. This is despite the data also suggesting that consumers prefer to take out longer-term fixed rate products.

Dr Koblyakova added: “According to this data, larger profit margins for variable rate mortgage products positively influences demand. These findings are very important, and should stand as a call for action for policymakers, as they show that UK households may be faced with greater payment shocks because of the strategies of lenders.”

Professor White said: “Regulation of financial products such as mortgage backed securities is regarded as a key issue in the global financial crisis. Securitised products are argued to have had credit ratings that suggested they were lower risk than was actually the case.

But it's clear from this research that securitisation – providing it is tightly regulated - has the potential to provide borrowers with increased access to lower risk mortgages.

What’s also clear is that the UK mortgage market may be dominated by variable rate and short-term fixed rate mortgages because lenders make more money from these products, not because they are the consumer’s first choice of mortgage.”

Join our mailing list:

Leave a comment



Latest Comments

luxus
luxus 27 Sep 2016

It can be stressful. More clarity is needed on the process, from a customer perspective and consideration should be given to using the Scandinavian model where the sales process is much quicker.

view article
Melissa_Green
Melissa_Green 26 Sep 2016

Green belts are normally designated around capitals and other major cities and conurbations and their aim is to prevent urban sprawl by keeping land permanently open. The essential characteristics of green...

view article
Jimmy_McCoy
Jimmy_McCoy 16 Sep 2016

I think that the main reason to buy garden purchases in last minute is because people always search for the best deal. In summer months there are abundance of seasonal goods and it means more low cost

view article
Jimmy_McCoy
Jimmy_McCoy 16 Sep 2016

Buying a home often is more expensive than you expect. There are lots of hidden costs such as: stamp duty, surveys and valuations, mortgages etc. that can add more than 10% to the total bill

view article
Homebuyerconveyancing
Homebuyerconveyancing 15 Sep 2016

We are seeing a massive influx of Homebuyers using online Estate Agents. The winners are the online portals that still aim to manage the customer journey to homeownership. They provide a valuation service,...

view article
oliviaG
oliviaG 12 Sep 2016

Without a doubt renovating can truly be very beneficial to many homeowners but it depends to a great extent on the condition of your home and the parts of it you want to refresh. Before you start you should...

view article
oliviaG
oliviaG 29 Aug 2016

So true about cats!

view article
Jason Roberts
Jason Roberts 25 Aug 2016

Any predictions what average rent will be at the same time next year, anymore drops coming?

view article
dylanvan
dylanvan 19 Aug 2016

very good, thanks for sharing

view article
SecomTech
SecomTech 19 Aug 2016

Firstly, I either lodge with DPS or do not take a deposit...secondly, If a tenant has not received a confirmation their deposit is secured with either a scheme or in an insured account with an agent/landlord,...

view article
jasonevans
jasonevans 19 Aug 2016

Belvoir has over 15 years of experience in property lettings, buying and renting and is one of the best agencies I know about. I have heard that they revived an award for the hard work. Really amazing...

view article
jasonevans
jasonevans 19 Aug 2016

Usually these areas are least affected when it comes to unexpected economical collapse.

view article

Related stories

More articles from Finance