Securitisations in times of Covid-19

It was not surprising that HM Treasury's Report on its Review of the UK Securitisation Regulation published earlier this week found it difficult to draw conclusions on the effect of the UK Securitisation Regulation on the functioning of the UK securitisation market. For starters, and putting Brexit aside, the pandemic has disrupted financial markets in a unique way for most of the time that the Securitisation Regulation has applied in the UK, making any assessment of the impact of the Regulation tricky at best.

There is no doubt that the UK securitisation market as a whole has been affected by the pandemic, reflecting the impact on the wider capital markets, although some evidence shared with the Treasury supports our experience that not all types of securitisations were affected equally. While the flow of mortgaged backed securitisations may have slowed earlier in the pandemic, we have seen a marked increase in some consumer receivables backed securitisation transactions.

The UK securitisation market would likely have been left more bruised were it not for the various government-driven and/or regulator support measures, such as the financial support packages and the temporary changes to the stamp duty (and in Scotland the Land and Buildings Transaction Tax) regime which helped to boost the RMBS market.

There are legitimate views that the full impact of the pandemic on the UK securitisation market has yet to unfold. For example, RMBS securitisations, where borrowers benefited from now expired Government-backed or lender-agreed forbearance measures in the form of payment holidays or waivers, could be affected going forward, and some respondents to the Report indicated that they would not be surprised to see a future increase in non-performing loans. Overall, however, the UK securitisation market proved to be resilient and is recovering well, and HM Treasury reported that the Securitisation Regulation has helped to increase the transparency and robustness of the UK securitisation market.

As we wrote about here our experience is that there is an overall tangible increasing appetite and activity of alternative funders in the market. This is both promising and a real call for optimism as we enter our third calendar year with Covid-19 by our side; securitisations can play an important role in the economic recovery from the effects of the pandemic by enabling lenders to continue to lend to and support the real economy. We look forward to increasing securitisation activity in 2022 and providing Scots law support to securitisation transactions which involve customers or assets located in Scotland.