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RMBS failing to match requirements

Legal & General says the UK mortgage securitisation market has to change if it wants to attract institutional investors.

At the mortgage sector conference, experts argued that without the help of outside investment, from pension funds, for example, the UK residential mortgage-backed securities market and the non-bank sector would remain stagnant.

But L&G head of fixed-income research Georg Grodzki said to keep investors happy, pension funds have to find investments that are correctly priced relative to the risks and RMBS are not meeting that requirement.

He said: “We are in the long game and we look for fixed interest rates and so far what has been issued in the UK wholesale market has been variable rate and largely short-dated. That mismatch between the long-dated tenet of mortgages and the much shorter tenet of the RMBS products has been one of the main issues stopping us.

“If there was a RMBS product which was sufficiently long-dated and which paid a fixed rate of interest that compares well, we certainly would be interested. We would not miss it if it was not there but clearly that would be a good diversification for us.”

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