It has just published a report, “European RMBS Outlook 2020,” which suggests that greater activity could come from challenger banks in the UK and buy-to-let mortgage lenders in the Netherlands.

RMBS credit performance looks set to remain broadly stable, with few signs of material deterioration in underlying collateral pools and unemployment continuing to fall in most RMBS markets.

Bank of England’s Funding Schemes

At the end of September 2019, borrowings of £108 billion were outstanding under the Bank of England’s Term Funding Scheme, with a further £4 billion still outstanding under the older Funding for Lending Scheme (FLS).

S&P estimates that about £17 billion will mature in the second half of 2020, increasing to more than £75 billion in 2021. As a result, some UK mortgage lenders are increasingly likely to once again tap the RMBS market among others, as they plan for the gradual run-off of this official sector term funding.

STS-labeled securitisation

In S&P’s view use of the “simple, transparent, and standardized” (STS) label should accelerate through 2020. In particular, from April 2020, only STS-labeled securitisation exposures can count as high-quality liquid assets in EU banks’ calculation of their liquidity coverage ratio.

Green RMBS

The firm also anticipates increased interest in “green RMBS” across all European jurisdictions. To date, the Netherlands is the only market where this is a common feature. A few other countries, notably the UK, also have active originators of green mortgage loans.

However, the currently limited origination volumes of these products elsewhere means that we may not see a material increase in “green”-branded RMBS transactions until 2021 or beyond.