As the U.K. RMBS pipeline steadily grows this year, market participants have turned their attention to how these transactions might weather an unfavorable housing market. The verdict, for now, looks positive, said analysts at Morgan Stanley.
Consumer confidence in the U.K. remains strong, regardless of slowing economic growth. The current low interest rates encourage spending and house price inflation, said the analysts. However, it's unlikely that this trend will survive in the long-term. Morgan Stanley reported, "We do not believe this decoupling between the consumer and the rest of the economy is sustainable and are keeping a close eye on unemployment, interest rates and consumer confidence as lead indicators of potential sources of problems for the housing market."
But even in the face of depressed economic conditions, analysts said that they maintain faith in the credit of existing seasoned U.K. RMBS issues and are confident that the models of existing deals are significantly cautious to weather a negative credit cycle. "Our perception is that these deals have been sufficiently well enhanced," said one analyst. "We do not envisage problems for investors of RMBS if losses increase from the low levels seen throughout the past decade."
Slated to come to market in the coming months is HBOS, who publicly disclosed its intention to do another transaction; Northern Rock is expected to issue under its Granite master trust; and Abbey National has commented that it intends to use another master trust structure, Holmes 6.