Pegasus Capital

As we write, Virgin Money has reported a 30% jump in mortgage lending to £2.1bn in the first quarter of 2016 compared to the same quarter last year. This was in line with the surge in mortgage lending caused by the rush to beat the 3% stamp duty increase for buy-to-let and second homes in April. Gross mortgage lending was £17.1 in March, according to the British Bankers Association, 64% higher than a year ago and the highest since April 2008. The Council of Mortgage Lenders analysis suggests there was £4-£5bn of extra lending than would have otherwise been the case. House price inflation looked somewhat correlated with this as prices rose 4.2% in the first quarter according to Hometrack – the highest quarterly rate for 12 years.

The stamp duty increase on buy-to-let and second homes has won strong public support according to the FT. 47% of respondents said they were in favour of the tax compared with 18% against. Perhaps this is not surprising giving that tenants and aspiring home owners outnumber landlords in the populace. However, only time will tell whether the stamp duty increase and reduction of higher rate mortgage interest (due to be phased in from 2017), will be really beneficial to aspiring home owners. Arguably the bigger hurdle is that house prices are unaffordable in many areas (notably London & South East) due to a fundamental lack of supply which has not been addressed.

While the Bank of England was announcing its new tougher standards for Buy-to-Let mortgages and Nationwide was tightening its lending criteria (moving its monthly rental income cover to 145% from the previous 125%), Barclays introduced a 100% mortgage product – the first since the financial crisis. This is not exactly a return to the days of Northern Rock’s 125% Together mortgage, given that for the Barclays 100% deal a guarantor/parent has to place a 10% deposit in an account for the loan to be granted – i.e. it is more akin to a 90% mortgage for the bank and, means that the Bank of Mum and Dad should get repaid rather than having to gift the money to its offspring.

New Issuance in March

Sterling Covered Bond Issuance

In the Sterling Covered Bond market there was a benchmark 3 year deal from Nationwide. As per all the new issues so far this year, it came in the form of a 3 year floating rate coupon. The final order book was in excess of £1.0bn according to the lead managers. Price talk started at 3mL + 50bps, but the deal finally priced at 3mL + 48bps. This compares with the 50-52bps paid by issuers in February and March to launch 3 year covered bonds; but is a notably wider level than the 3mL + 37bps Lloyds paid for its 3 years GBP 750m issuance in January.



GBP 750m




3 years


3 month LIBOR + 48bps

Sterling RMBS/ABS Issuance

The biggest deal to price in this space in March was the £6.1bn of mortgage bonds sold by Cerberus Capital. The notes were backed by mortgages from Northern Rock which Cerberus acquired last year. Bloomberg reported that a significant portion of the deal (Towd Point Mortgage Funding 2016-GR1) was pre-placed with investors. So it will be interesting to see if it trades much in the secondary market.

Virgin Money - second RMBS of the year.

Virgin Money priced another £1.0bn+ benchmark RMBS deal. Virgin Money held a percentage of the Class A notes and 100% of the Class M and Z notes. The shorter dated A1A and A1B notes appeared to go well, being 3.4 times and 1.8 times oversubscribed. We note that the spread on the A1B Sterling bond below was 20bps wider than where Virgin Money paid to issue a £350m 1.9 year note in January (3M £ L + 60bps), before the market volatility of February caused spreads to widen.




C/E %

WAL (yr)



EUR 157.9m




3M E + 45bps


GBP 375.8m




3M L + 80bps


GBP 419.1m






G BP 41.2m






GBP 66.7m





PegasusCapital - 05/05/2016

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A view from the Bridge - August 2023

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