HBOS instigates return to mortgage backed bond market

21 May 2008 / by Rebecca Sargent
HBOS has become the first UK mortgage lender to complete a mortgage securitisation since the credit squeeze took hold last summer.

It has successfully sold £500million worth of mortgage backed bonds, a move that has sparked hope that the credit freeze is thawing.

The news comes as the first glimmer of hope in the mortgage market in months. The last big news to come from HBOS was the announcement of a £4billion rights issue aimed at boosting its balance book as it became one of many banks to suffer as a result of sub-prime mortgage lending.

So far, the credit crisis has forced banks to ask shareholders for cash and, consequently, inter-bank lending had frozen, until now. Prior to this latest announcement from HBOS, the Bank of England had been forced to step in and ease the strain on the mortgage market with its £50billion Special Liquidity Scheme, the benefits of which have yet to filter down to consumers.

HBOS made this tentative move into the market as a result of calls from its investors who have decided it is time to return. A spokesperson for HBOS, said: "This was a deal sparked by enquiries received from a number of investors.

"We have created a placed deal to a small group of investors: 50 per cent banks and 50 per cent insurance companies – both UK and international institutions."

However, £500million is only a fraction of the £3billion or so a bank as large as HBOS could have made before the credit crisis. And, it is reported, HBOS will pay 6.7 per cent interest on the money – 85 percentage points above the Libor rate which was set at 5.84688 per cent yesterday.

Nevertheless, the move has strengthened HBOS' share prices and reputation, its spokesperson said: "This is the first UK RMBS (residential mortgage backed securitisation) deal completely placed to investors since July 2007 – it reflects the strength of HBOS and our quality as an issuer of RMBS. Given our position in UK RMBS, HBOS decided to take the first step to help open up the market – we have obtained a very positive response."

Consequently, experts are suggesting that the worst of the credit crisis could be over. Jim Reid, a credit strategist at Deutsche Bank told the Telegraph that "This is a further sign that the actual credit crisis is easing" adding that "anything that is not a complete seizure is encouraging."

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