Investors show confidence in residential housing market

Lloyds Banking Group (LBG) has successfully raised £2.5bn through issuing bonds backed by UK residential mortgages.

The process, known as ‘securitization’, was a common way of lenders securing funding prior to the credit crunch.

The crunch came about largely because the global securitization markets collapsed when the US mortgages backing billions of dollars worth of bonds were revealed to be bad loans.

The latest securitization carried out by LBG is an indication that investor confidence in the housing market is returning.

The group has carried out one other securitization deal since the credit crisis started, but this is the first deal which has involved US investors.

The lender sold £2.5bn worth of bonds in a five-tranche deal, made up of three sterling, one dollar and one euro tranche.

The deal was priced attractively and was more than twice oversubscribed. The five-year sterling was priced at three-month Libor plus 130 bps, while the three-year dollar tranche was offered at 115 basis points over Libor.

Ian Stewart, Head of Securitisation & Mortgage Funding at Lloyds Banking Group, which includes lenders Halifax, Bank of Scotland, Cheltenham & Gloucester, Birmingham Midshires and Intelligent Finance, said:

“We are pleased with the good reception from investors to this deal and the success of the US issuance demonstrates that funding opportunities continue to improve.

"We hope that other UK lenders are encouraged to follow and help to re-establish securitisation as an important source of mortgage funding.”