Here Broadstone financial services consultancy’s senior director of risk Richard Pinch explains why it could be good news for the mortgage market…

The new consultations address areas where greater proportionality, flexibility and clarity could strengthen the UK securitisation system. The proposals focus mainly on transparency obligations for originators and on simplifying investor due diligence requirements, with the PRA aiming to reduce prescriptiveness and update capital treatment for loans under the Mortgage Guarantee Scheme.

The package of reforms ultimately seeks to make securitisation rules less rigid and burdensome for UK mortgage lenders, alongside other PRA-authorised firms, in order to reduce compliance costs, increase efficiency and attract more investor interest in mortgage-backed securities (MBS). For mortgage lenders, this is likely to mean less detailed reporting and fewer checks on securitised mortgage pools, as well as fewer prescriptive “tick-box” requirements around how due diligence must be carried out.

The proposals to relax due diligence and disclosure requirements may indirectly impact securitised mortgages, with the PRA suggesting a reduction in the number of prescriptive checks that investors must perform when purchasing MBS. For mortgage lenders, this could decrease administrative burdens and potentially lower the costs associated with securitising loan portfolios. This, in turn, could encourage more investment in MBS and make the market more accessible and competitive.

The PRA is also proposing a simplified approach to investors’ obligation to verify risk retention, which requires lenders to retain some of the risk when securitising loans. Under the current framework, risk retention rules can be complex, but the PRA’s proposals would offer more flexible options for lenders and aim to align risk retention more closely with the actual risks of the underlying assets. This would allow mortgage lenders to reduce the costs associated with retaining risk while still ensuring investor protection.

Other proposed reforms include adjustments to capital requirements for mortgages backed by government guarantees, such as those under the Mortgage Guarantee Scheme. This could reduce capital costs for securitised portfolios that benefit from government backing, potentially improving returns and increasing liquidity for lenders. This may also make certain mortgage-backed securities more attractive.

Finally, the PRA has proposed easing the regulatory burden for smaller securitisations, including single-loan securitisations. This could benefit smaller lenders or those issuing smaller mortgage-backed deals by reducing reporting requirements, lowering barriers to entry and improving access to the securitisation market.