Commentary

UK Bridging Loan Market: Traits and Credit Considerations

RMBS

Summary

This commentary provides an introductory overview of bridging loans in residential mortgage-backed securities and the bridging loan market in the UK. We also discuss the relevant factors we take into consideration in our analysis of this asset type.

Understanding the bridging loan market and evaluating these assets from a credit perspective requires keeping up to date with regulations, market practices, and customer requirements, which are all still evolving.

Key highlights include the following:
-- There has been extraordinary growth in the UK bridging loan market in recent years.
-- Similar products have already been securitised in the U.S.; with the bridging loan market's expansion in the UK, originators now have a track record of originating and monitoring these portfolios, and expectations are growing for the first public UK securitisation backed by a pool of bridging loans.
-- Many of the credit rating drivers for bridging loans are consistent with standard residential loans. However, there are some risks present in bridging products that are different from the risks in standard UK residential mortgages.

"While we expect these loans to be marginally riskier in a benign environment, there is greater tail risk in the event of a downturn, and we would hence expect bridging loan performance to deteriorate more sharply than a traditional mortgage loan", said Ketan Thaker, Managing Director, European Real Estate & NPL Ratings.

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