Fears that an overheated U.K. housing market could negatively affect securitizations of buy-to-let mortgages are completely overdone, say analysts and issuers. Last year, there was concern that Paragon Mortgages had pulled its £400 million because of negative sentiment toward the buy-to-let market, but Nick Keane, the firm's finance director, says the deal was postponed because residential mortgage-backed securities' spreads were too wide. He declined to say at what levels Paragon would seek to bring the deal.
Phil Adams, an RMBS analyst at Barclays Capital in London, says there is nothing wrong with the buy-to-let sector and that lenders such as Paragon are very careful about their underwriting criteria. In fact, underscores Adams, several existing Paragon deals have been upgraded recently. Bradford & Bingley and Britannic Money are among other lenders that cater to buy-to-let borrowers.
After RMBS spreads widened last year on the back of heavy supply from the likes of Abbey National, Paragon put its deal on hold to wait for better market conditions, explains Keane. The plan was to include collateral from an older deal that had come to term, but now depending on spread movement, the firm may opt for a smaller deal using only newly originated mortgages as collateral.