On 20 March, amid the market meltdown caused by the coronavirus pandemic, the London-based specialist property debt platform LendInvest announced the closing of a £285 million (€302 million) securitisation of loans provided to UK buy-to-let landlords.
In a statement, the company said the residential mortgage backed-securities issuance would set it up well to keep writing loans through its buy-to-let platform, as well as lending to property investors and developers “through this rocky period”.
LendInvest first turned to the RMBS market in June 2019, when it securitised £259 million of residential mortgages in a deal its then chief executive, Christian Faes, said provided it with “funding that is cheaper than if we were a small deposit-taking bank”.
The latest deal, Mortimer BTL 2020-1, which was arranged by US bank Citi, was closed amid very different market conditions, with covid-19 sparking capital markets dislocation. However, the deal was oversubscribed and priced across its senior tranche at 1.07 percent over SONIA – 23bps tighter than its debut deal last year.
Speaking to Real Estate Capital, Rod Lockhart, who became chief executive in January, said the timing of the latest RMBS transaction was crucial. “The pricing we achieved was originally offered by investors a few weeks ago, just as markets were starting to collapse. If we were to go through that process today, we’d expect demand to be thinner and pricing to be different.”
Lockhart added that, despite a “rollercoaster few weeks” before the deal completed, investors did not try to pull out of the deal. “A lot of them were investors who supported us in our first RMBS. They were mainly large asset management companies as well as bank treasuries,” Lockhart said.
Lockhart said the company is “very closely monitoring” its loan portfolio amid the market panic which has set in as a result of the spread of the coronavirus. On 17 March, UK Finance, the trade body for the country’s major banks, outlined guidance for how households can apply for a mortgage holiday of up to three months, following the UK chancellor Rishi Sunak’s pledge to homeowners, potentially impacting the company’s borrowers.
“Our buy-to-let customers have underlying tenants that may be in a distressed situation and we will review loans on a case-by-case basis,” Lockhart said. “It would be very unusual for us, or any other lender, to repossess an asset on the basis of three missed payments.”
Lockhart expects there to be limited to no residential purchases in the short-term, meaning business for its buy-to-let residential lending product will likely come from landlords needing to refinance portfolios.
Lockhart insisted LendInvest will continue to lend across its residential buy-to-let, bridging and development business lines, despite the uncertainty created by the covid-19 pandemic. “We expect lending volumes to reduce in the coming months, because it will be difficult to get valuations done, for instance,” Lockhart said.
“Clearly, it will be very difficult to underwrite development finance at the moment, so we will be applying different stress tests according to a range of downtimes,” he added. “We will stress-test that a development project can withstand a significant delay. We are also testing deals against potential falls in sales values, because anything developed today will be sold into a very different market in 24 months’ time.”
Lockhart argued that LendInvest’s efforts in recent years to diversify its own sources of capital will help it withstand stress in the market. Around a third of the company’s loan-book is financed through the two securitisations, while loan-on-loan financing from banks including HSBC and Citi fund another third of its portfolio. The remainder of its assets are funded by listed bonds, as well as an online investor platform which is open to high-net-worth investors.