The triple-As of ColCap’s buy-to-let RMBS, Molossus 2025-1, priced at 83bp over Sonia on November 6.
While that marks a successful second trip to the UK market for the Aussie-headquartered lender, it is also part of a bit of a spread retreat for the asset class.
Consider that the tightest UK buy-to-let deal this year was Enra’s Elstree 2025-1 1ST, priced on February 19 at 72bp over Sonia. On at least two occasions this year, syndicate bankers have been eyeing the high 60bp level, but none of them have managed to get there.
Before pontificating on exactly why buy-to-let spreads have widened slightly, it’s worth noting how tight they currently are. In January 2023, Belmont Green (now Vida Bank) priced a securitization from its Tower Bridge shelf at 150bp over Sonia!
No wonder regular issuers are now rushing into the market to prefund originations, as more opportunistic players swoop in, such as Chetwood Bank, which placed a deal for the first time last week.
So back to that pontification on buy-to-let widening. There are probably three main factors in the mix.
First is a seasonal effect in the securitization market. As the days darken into mid-November and investors have been chewing over heavy supply for months, it is natural for them to get a little more cautious and discerning.
Second, the equities market has been through a volatile period, which continued last week. More broadly, there are considerations about relative value. With UK prime RMBS in the high 40bp and buy-to-let in the low 70bp, the market was looking very compressed. It’s not surprising that, as things cool down, it would be the wider end of the market that moves more.
Finally, there’s a big question mark over what the forthcoming UK Budget will mean for the sector, as the possibility of landlords being charged national insurance has been floated. There are already several policy headwinds increasing the costs for landlords, such as tax changes and minimum energy performance certificate (EPC) standards.
The recently introduced Renters’ Rights Act contains many overdue reforms to make the UK’s market fairer for tenants, but it also created more obligations on and potential challenges for landlords.
RMBS market sources tend to be pretty bullish about the resilience of the sector, and most do not see the slight widening as down to UK government policy. But it is certainly another factor for investors to think about.
