Key takeaways
- Resilience in challenging conditions: The UK housing and mortgage markets are showing notable resilience despite persistent economic headwinds, including high interest rates, inflation, and subdued consumer confidence. The prime housing segment remains stable, but the buy-to-let sector is under pressure, with more small landlords expected to exit the market.
- Policy and regulatory developments: Government measures to tackle the housing affordability crisis have yet to deliver significant change, with slow planning processes, tax burdens, and a shortage of skilled labour continuing to hamper progress. Regulatory adjustments – such as relaxed lending caps and clearer affordability checks – are supporting product innovation, particularly among specialist lenders.
- Technology and product innovation: Advances in technology and the adoption of AI are streamlining mortgage origination, underwriting, and customer service, with specialist lenders leading the way. New products, including green mortgages, Sharia-compliant finance, and second charge loans, are broadening access and meeting the needs of a more diverse range of borrowers.
- Sustainability and investment trends: Sustainability is moving to the forefront of housing policy and investment, with stricter energy efficiency standards and large-scale retrofitting on the horizon. Institutional investors are increasingly focused on green finance and retrofitting opportunities, while securitisation and risk transfer remain key tools for funding and managing capital.
The 2025 DealCatalyst UK Mortgage Finance Conference convened key stakeholders to assess a resilient market amid high interest rates and inflation. Prime lending remains steady, while buy-to-let faced pressure and rising landlord exits. Discussions focussed on housing policy challenges under the new Labour government – planning bottlenecks, skills gaps, and tax issues – contrasted with EU progress ahead its 2026 Affordable Housing Plan. Speakers highlighted product and funding innovation driven by regulatory clarity (including on loan-to-income (LTI) and affordability); digitisation and artificial intelligence (AI) across origination and underwriting; and growth in specialist segments such as Islamic finance, bridging, and second charge lending. Sustainability featured strongly, with energy-efficiency standards, and retrofitting influencing pricing and risk. Investor panels emphasized the central role of securitisation and risk transfer, Basel 3.1 implications, and the growing bank-non-bank collaboration to deliver tailored credit and better consumer outcomes.
Brick by brick: How the UK housing market demonstrates resilience amid economic uncertainty
- Macro-economic trends: Limited economic growth figures are continuing to place a strain on the UK economy. House price growth is also projected to stay low for the foreseeable future in light of ongoing high inflation, potential tax increases, low consumer confidence, and global trading challenges. Further interest rate cuts are expected in 2026. It was noted that the prime housing market performance has been relatively stable despite the fact that some specialist lenders may be vulnerable to the unemployment figures, but otherwise, this segment remains stable. The buy-to-let sector is more vulnerable, and delinquencies have risen due to increased interest rates. Small landlords are expected to start exiting the market.
- Government policies: Despite the election of a new Labour government, current policies have been insufficient to address the affordability crisis in the UK housing market. Issues such as slow-moving planning permissions, high taxes, and the cost-of-living crisis continue to hamper growth and make housing less affordable for many.
- Possible solutions: It was noted that priority has always been placed on interest rate stressors, capital buffers, and affordability checks to make the mortgage market more resilient. Innovation has been introduced on multiple fronts, including technological advances to expedite underwriting procedures and regulatory changes to mortgage rules by the Financial Conduct Authority (FCA) and Prudential Regulation Authority, for example, to assist borrowers in accessing a range of lending products through banks and non-bank lenders.
- EU initiatives: The EU is taking proactive steps to address housing issues through new economic initiatives. The European Commission is expected to propose a European Affordable Housing Plan in early 2026 to address the housing crisis across the EU, which will support cities in increasing affordable, sustainable housing and improving access for those in need. New lending products across several different EU countries, including Romania, Greece, and Italy, as well as the “cradle to grave” housing approach adopted under the Finnish model, were noted as examples of how governments can help the sector address affordability issues. It was noted that UK mortgage lenders continue to be too risk-adverse by comparison.
Summary: The UK housing market is continuing to navigate a complex landscape marked by ongoing high interest rates and inflation, which are contributing to increasing mortgage arrears. Despite the election of a new Labour government, existing policies have not addressed the affordability crisis effectively, with slow-moving planning permissions and the potential introduction of high taxes continuing to impede growth. The Labour government’s ambitious target to build 1.5 million new houses annually has not yet been met, although it was noted that more houses are still being built than under the previous government. Meanwhile, the EU is taking proactive steps to address housing issues through new economic initiatives, with the introduction of a European Affordable Housing Plan to be published next year, along with varied lending products for young buyers, signalling a shift towards more integrated and comprehensive housing policies at the European level.
The new normal in lending: Homeownership, stamp duty, and future trends
- Lending rules and affordability: Relaxation of the LTI cap (to a macro cap) is unlocking product innovation for smaller and specialist lenders, although financing these products remains a hurdle. Clarification on stress-rate expectations (especially for five-plus year fixes) is improving affordability assessments. Caution was flagged against layering too many relaxations at once.
- Stamp Duty: This remains a major friction that suppresses mobility and first-time purchases due to upfront cash-out. Debate over alternatives (seller-paid duty, exit, or annual taxes) highlights complexity, fairness, and implementation challenges; reform uncertainty is causing some buyers to wait.
- Rate competition and specialist lenders: Sub-4% high street fixes aren’t directly comparable to specialist products due to different funding models and risk. Specialist lenders compete on criteria, flexibility, complex cases, and service – not headline price – though they must explain pricing gaps to consumers.
- Technology and digitisation: UK mortgage journeys remain slow due to legacy systems and fragmented processes. Future opportunities include open banking, automated valuation models, AI-driven underwriting, smarter “know your customer” (KYC) and anti-money laundering processes, and integrated broker–lender–conveyancer rails. Specialists are more agile, but industry-wide adoption and infrastructure reform (including capital markets plumbing) are needed.
- Islamic finance: Sharia-compliant structures use co-ownership/lease models instead of interest; cashflows resemble conventional mortgages, but legal form differs. The UK is a leading Western jurisdiction, with supportive regulation and growing demand from a young, underserved Muslim segment; education across lenders and conveyancers is key.
- Regional buy-to-let (BTL) trends: Yields are strongest in the North and Midlands (e.g., North East and North West) and lower in London and the South East. Investors are chasing yield through property types – houses in multiple occupation (HMOs), holiday lets, and commercial – as much as through location. Upcoming energy standards and renters’ rights influence economics and may drive diversification.
- Consumer protection and innovation: Regulation should prioritise consumer outcomes while enabling innovation (e.g., shared equity and rent-to-buy models), but scaling requires stable funding and investor confidence. Education for consumers and market participants remains critical to adoption and trust.
Summary: Affordability improvements and regulatory clarity are catalysing product innovation, particularly among specialists, but scale depends on funding and technology modernisation. Stamp Duty remains a critical brake on mobility, with reform options carrying material trade-offs. Competitive dynamics hinge on service, criteria, and transparency, not just on price. Rising Islamic finance demand, regional BTL yield dispersion, and evolving environmental, social, and governance (ESG) and renter policies will drive strategy. Innovation that demonstrably improves consumer outcomes – and is backed by reliable capital and robust digital infrastructure – will gain traction fastest.
Fireside chat: The housing pipeline – politics, policy, and practical solutions
- Housing delivery targets: The UK remains significantly behind on government housebuilding targets, with recent completions falling well short of annual goals. The pace of new housing starts has slowed sharply, with Q2 figures showing a 60% drop from the previous quarter and the lowest levels since 2022. This persistent shortfall is attributed to both systemic and cyclical factors, including planning bottlenecks and market uncertainty.
- Application-to-delivery process: The planning and delivery cycle is hampered by complex, lengthy application requirements and overburdened local authorities. While the process appears straightforward on paper, in practice it involves thousands of pages of documentation and regulatory assessments, overwhelming both developers and planning officers. Only a small fraction of planning decisions are made within statutory timeframes, contributing to significant delays.
- Political policies and consensus: Both the Conservative and Labour parties acknowledge the housing crisis and the need for increased supply, but diverge on their methods and targets. The Conservatives have focused on intervention and local targets, while Labour has proposed higher targets and more ambitious reforms, especially in urban and rural areas. There is some emerging consensus on the need for planning reform and improved consultation, but political cycles and local opposition continue to hinder long-term progress.
- Construction skills gap: A shortage of skilled labour is exacerbating delays and increasing costs, undermining investor confidence and project delivery. The government is urged to play a more active role in upskilling the workforce to meet future demand, but progress remains slow.
- Budget and policy risks: Upcoming budget decisions, such as potential reforms to the multiple tax on construction waste, could further increase costs by up to £52,000 per home. Such measures risk making new homes even less affordable and could undermine the impact of any mortgage or planning reforms.
Summary: The UK’s housing pipeline is constrained by planning complexity, skills shortages, and policy uncertainty. While there is broad recognition of the crisis and some areas of cross-party agreement, meaningful progress will require streamlined processes, workforce investment, and stable, long-term policy commitments.
Think tank: Is green making a comeback? Building sustainable communities for the future
- Supply–demand and barriers to new development: Sustainable, green housing is regaining focus, but supply still lags behind demand. Key barriers include complex planning, high upfront costs, skills shortages, and inconsistent policy. Energy independence is now a stronger motivator for homeowners than mandatory green upgrades.
- Policy, planning, and financing alignment: Better integration of policy, planning, and finance is needed to accelerate sustainable development. Long-term investors are increasingly prioritising sustainability, and the line between green and traditional finance is disappearing.
- Garden city and sustainable community models: The garden city model is being revisited for its potential to create socially balanced, energy-efficient communities. Health, well-being, and access to green spaces are central considerations.
- Critical infrastructure and retrofitting: Upgrading energy infrastructure and retrofitting old housing stock are essential. The private rental sector faces particular challenges due to high occupancy rates and limited upgrade opportunities. Green mortgage and retrofit finance products are growing but have yet to reach scale.
- Energy efficiency targets and expectations: The government is expected to strengthen energy efficiency standards, with new regulations likely to require solar panels and off-gas-grid homes. The Future Homes Standard is anticipated to drive significant change.
- Investor perspective: Institutional investors see strong opportunities in retrofitting and sustainable development, especially through partnerships with local authorities. However, scaling up remains a challenge, and further policy clarity is needed.
Summary: The momentum behind sustainable and green housing is growing, with policy, investment, and public interest increasingly aligned. However, significant challenges remain, including planning complexity, skills shortages, and the need for large-scale retrofitting of existing homes. The anticipated introduction of stricter energy efficiency standards and the mainstreaming of green finance are expected to accelerate progress. Institutional investors are poised to play a larger role, but achieving scale will require clearer policy direction, better integration across sectors, and continued innovation in both new development and retrofitting. The sector is moving towards a future where sustainability is embedded in all aspects of housing delivery, but coordinated action and long-term commitment are essential to meet the UK’s needs.
AI in action: Examples of AI live in the mortgage market
- Origination and deployment: Leading UK mortgage technology providers are increasingly using AI-driven origination platforms, with some lenders, such as Empowered, reporting that approximately 60% of mortgage cases are completed within a single day. Notably, Nottingham Building Society has already implemented these solutions, with Monmouth Building Society set to follow.
- Underwriting and automation: AI-powered underwriting assistants are now capable of parsing income documents within seconds, identifying discrepancies and complex pay patterns with a high degree of accuracy. These tools are currently used to support human underwriters, particularly in specialist cases, and have demonstrated accuracy rates of 98–99% in key income fields.
- Broker support and research: Voice AI systems are automating a significant proportion of broker criteria queries, handling complex scenarios and escalating more challenging cases to human staff as needed. In parallel, research automation tools are streamlining the fact-finding and eligibility checking process, directly accessing lender sites, running affordability calculations, and producing suitability reports, thereby reducing reliance on traditional sourcing systems.
- Technology and risk management: The adoption of AI agents, as opposed to traditional web scrapers, has improved the resilience of these systems to changes in lender websites. Conversational interfaces are enabling more personalised customer journeys. Human oversight remains a critical component, with robust escalation policies and ongoing monitoring to mitigate risks such as model hallucinations.
- Workforce and industry impact: The integration of AI is expected to drive efficiency gains, allowing staff to focus on higher-value tasks rather than leading to widespread job losses. The industry is moving towards a future where mortgage processes may become as streamlined as other consumer financial products.
Summary: The deployment of AI across the mortgage market is accelerating, with tangible benefits in speed, accuracy, and customer experience. The most successful implementations are those that combine technological innovation with strong governance and human expertise.
Collaboration and competition between banks and alternative lenders
- Market landscape: The UK mortgage market is witnessing a growing presence of large non-bank lenders, such as Lambay Partners, who operate forward-flow models at scale in the buy-to-let sector. Specialist lenders, such as GenH, are addressing the needs of owner-occupiers with complex income profiles, while multi-product platforms, such as Roma Finance, offer a range of solutions, including development finance, bridging loans, and revolving credit facilities.
- Drivers of growth: Regulatory changes following the 2008 financial crisis, including Basel and Dodd-Frank rules, have shifted banks towards lower-risk activities and opened the door for non-banks to fill gaps in the market. The search for yield among institutional investors and advances in technology have further enabled non-banks to expand their origination and servicing capabilities.
- Partnership models: Collaboration between banks and non-banks is now the dominant model, with banks leveraging forward-flow arrangements to access specialist origination without building new platforms. Non-banks, in turn, provide granular credit appetite and serve niche segments that banks may not address. Typical bank partners include those seeking scale, deposit-rich institutions lacking mortgage infrastructure, and banks undergoing technology transformation.
- Competitive dynamics: While direct competition remains in mainstream lending, non-banks differentiate themselves through a broader product range, multiple funding sources, and more flexible criteria. Building societies, facing compliance and IT challenges, are increasingly partnering with non-banks to maintain relevance and drive innovation.
- Funding, risk, and regulation: Diversified funding structures help mitigate concentration risk, with regular audits and ongoing regulatory changes – particularly in the buy-to-let sector – posing external challenges. Non-banks are subject to FCA regulation and Consumer Duty requirements, with a preference for targeted, proportionate oversight rather than bank-style capital regimes. The HMRC bank referral scheme has further formalised cooperation between banks and non-banks.
- Funder considerations: The sustainability of forward-flow arrangements depends on the non-bank’s capacity to originate, economic alignment between parties, and robust management information and reporting systems.
Summary: The UK mortgage market is increasingly defined by collaboration between banks and non-bank lenders, combining the strengths of deposit funding with specialist origination and product innovation. While competition remains in core lending segments, the most significant advances are being made through structured partnerships, enhanced data transparency, and expertise in niche credit markets.
Building momentum or hitting walls? Navigating risks, reforms, and returns in the UK housing market
- Government housing initiative and delivery challenges: The government’s plan to build 1.5 million homes in five years faces major obstacles, primarily an outdated and fragmented planning system plagued by local opposition and bureaucratic red tape. Nearly half of local authorities lack up-to-date plans, and small and medium-sized enterprise (SME) developers – once responsible for half of all new homes – now deliver only about 10%. Chronic undersupply is compounded by a construction skills deficit and a lack of long-term, cross-party political commitment. Without significant reform, the ambitious target is unlikely to be met.
- Boosting delivery and implementation: Key recommendations include adopting a digital-first, rules-based planning system with clear zoning and guaranteed allocations for SME developers. Streamlining regulation, improving local authority capacity, and fostering political consensus are essential. Developers also need clarity and support to navigate new building standards and ESG requirements.
- Impact on the mortgage market: A significant increase in housing supply would ease affordability pressures and potentially moderate house price growth. Lenders should prepare for a more competitive market by adapting risk models, especially as stricter energy efficiency standards may affect build costs, margins, and mortgage affordability. Pricing energy inefficiency into risk models is increasingly relevant.
- Regulatory considerations and lending criteria: Regulators can aid delivery by simplifying processes and supporting digital transformation in planning. The FCA’s move towards simplified affordability checks is welcomed, especially for first-time buyers, but robust safeguards and review mechanisms are needed to prevent negative borrower outcomes. Lenders are taking more responsibility and have learned from past crises.
- Building standards and ESG: Stricter energy efficiency requirements are raising costs, but developers are adapting and recognise the need to demonstrate ESG credentials. Clearer guidance for customers and landlords is needed to ensure compliance and maximise benefits.
Summary: Without bold planning reform and better coordination, the 1.5 million homes target is unlikely to be achieved. A digital, fact-based planning system and greater support for SME developers are critical. Lenders and developers must adapt to evolving standards and regulatory expectations to ensure sustainable growth and improved affordability in the UK housing market.
Investor perspectives on the UK mortgage market: Where capital is moving in 2025
- Capital allocation and securitisation: Traditional lenders, including building societies and high street banks, continue to dominate the UK mortgage market. Securitisation remains a key tool for funding, risk transfer, and capital management, with speciality lending becoming increasingly mainstream as new entrants scale up and established lenders diversify their funding strategies.
- Green mortgages and sustainability: The market for green mortgages is expanding, with approximately 19 products available and annual volumes estimated at £9 billion–£14 billion, representing 5–7% of gross advances. Demand is particularly strong among first-time buyers, with affordability improvements linked to higher Energy Performance Certificate (EPC) ratings (A/B) and corresponding increases in loan-to-income ratios.
- Regulatory developments: The implementation of Basel 3.1 and the growth of significant risk transfer (SRT) programmes are reshaping the competitive landscape. Accounting deconsolidation trades and portfolio sales are becoming more common, while output floors under Basel 3.1 are creating challenges for standardised banks in low-risk prime segments.
- Energy efficiency and retrofitting: Proposed regulations requiring all rental properties to achieve an EPC C rating would impact around 60% of the current stock, necessitating significant investment in retrofitting. These changes are expected to influence landlord economics, lending criteria, and property values.
- Credit performance and risk: Despite ongoing inflation and cost-of-living pressures, the performance of UK mortgages has remained robust, exceeding expectations set in 2022. Prime lending continues to demonstrate resilience, with unemployment identified as the primary risk factor to monitor.
- Technology and data: Advances in AI are improving due diligence and fraud detection, though maintaining data integrity and managing bias remain critical. Industry initiatives, such as the Open Property Data Association, are working to standardise and digitise property data, aiming to reduce transaction times. The Future Homes Standard, mandating solar panels and low-carbon heating for new builds, is expected to accelerate the transition away from gas and may result in a “brown discount” for non-compliant properties.
Summary: Investor appetite remains strong for prime and well-structured speciality mortgage assets, supported by ongoing innovation in securitisation and risk transfer. Regulatory changes, energy efficiency requirements, and advances in data standardisation are shaping the market, with performance remaining resilient and an increased focus on retrofitting costs, collateral quality, and employment trends.
Buy-to-let at a crossroads: High yields, new rules, and the rise of the corporate landlord
- Corporate landlord: Recent tax changes, such as the reduction of mortgage interest relief (Section 24) and the 3% Stamp Duty Land Tax surcharge, have increased costs for individual landlords. This increased tax burden has led to a growing presence of portfolio landlords, who bring greater professionalism and management expertise. Despite a spike in early arrears, losses have been de minimis and repossessions remain minimal, indicating overall market resilience. Market participants believe that legislative uncertainty is viewed negatively, as landlords are being overregulated, but the majority of landlord–tenant relationships are amicable.
- New rules and market uncertainty: The sector faces uncertainty not only from changing regulations affecting banks, non-banks, landlords, and tenants, but also from evolving prudential requirements (Basel III). This has created a complex and challenging environment for all market participants.
- Diversification and complexity of property types: There is a notable trend towards securing loans on more complex assets, such as [HO1] HMOs, semi-commercial properties, and multi-unit blocks. These property types require specialist underwriting and active management, raising the bar for landlord expertise.
- Chasing yield: HMOs and specialist loans: Strong investor demand for higher yields is driving increased volumes in HMOs and other specialist property segments. While these assets offer income diversification, they also introduce additional complexity, such as licensing, tenant turnover, and compliance requirements. Article 4 directions, which restrict permitted development for HMOs, have raised barriers to entry but support the growth of professional operators. Larger, multi-unit properties tend to be less liquid and require active management to minimise vacancy.
Summary: The UK buy-to-let sector is undergoing a significant transformation, marked by increased regulation, a shift towards professional and corporate landlords, and a focus on higher-yield, more complex property types. While yields remain attractive, legislative uncertainty and regulatory burdens are reshaping the market landscape.
Bridging boom: How short-term lending is reshaping the real estate landscape
Record growth and market volume: The UK bridging loan sector has reached a record high, with market volume at £13.1 billion and an estimated 450+ bridging lenders operating in the market. The number of bridging lenders continues to grow, reflecting strong demand for this type of financing and the sector’s potential.
- The key driver for the trend in this space over the last two years is that market participants are trying to maximise yield with existing assets, such as through conversions or refurbishments.
- Advancements in technology have significantly accelerated lending processes and improved security. For example, the use of biometric verification in [HO1] KYC procedures has greatly reduced the time required for identity checks and completion.
Two key drivers of growth:
- Speed: Bridging loans are favoured for their relatively quick funding process, often much faster than traditional bank loans. This rapid turnaround allows borrowers to act on time-sensitive opportunities.
- Liquidity: Bridging loans provide essential short-term liquidity, typically at an interest rate of 9–12%, to cover funding gaps for projects or property transactions. For example, they can provide cash for a borrower looking to purchase a property before releasing equity from an existing one.
Adaptability of bridging lenders
- Bridging lenders are highly adaptable, offering bespoke funding solutions tailored to individual borrower needs rather than fitting projects into standard products.
- Bridging lenders are more willing to consider a borrower’s funding requirements, taking into account factors such as the potential value of the project and the borrower’s circumstances. They are often more flexible in accommodating unique borrower needs than traditional banks.
- The sector attracts a wide range of lenders, with the influx of capital coming from private credit. For example, there has been a greater presence of building societies in the market, which is broader at the moment than ever before. At one end of the spectrum are specialist banks, typically providing short-term mortgages – not the kind of product offered by bridging lenders. At the other extreme are traditional banks, which do not lend in the space where bridging lenders operate, such as to SME contractors. In the middle are bridging lenders, acting as problem solvers who find innovative solutions for borrowers and offer bespoke bridging loans.
- The existence and growth of bridging lenders cater to demand in a market with a broad range of pricing, where borrowers are not always seeking the best price, but rather a solution to their funding needs.
Securitisation and funding
- Most bridging finance is funded through private capital, with limited reliance on public securitisation. Private securitisation, such as Bridging Residential Mortgage-Backed Securities (RMBS), aggregates loans for investors, but challenges remain in raising capital efficiently – from the right people at the right time.
Summary: The UK bridging loan market has experienced record growth, driven by demand for speed, flexibility, and liquidity in property transactions. Technological advancements and the entry of new lenders have further accelerated the sector’s expansion.
Second charge, first choice: The surge of second charge loans in the UK market
- Second charge mortgage growth: The UK is seeing a surge in second charge mortgage volumes, now outpacing remortgaging activity. This growth is driven by homeowners with low-rate first mortgages who are reluctant to refinance, as well as those seeking debt consolidation or home improvements. The trend is expected to continue as high remortgage costs and moderate house price growth persist.
- Market drivers and implications: The rise in second charge lending reflects both financial pressure on households and the appeal of accessing property equity without losing favourable first mortgage rates. While the market is expanding, there are concerns about lenders relaxing standards or cutting corners to chase volume, which could increase risk.
- Lender strategies and risk management: Lenders are competing through product innovation, speed, flexible criteria, and improved service. Manual underwriting remains common, with technology used to streamline processes and enhance fraud detection. Maintaining robust risk controls and thorough verification processes is a priority, especially as competition intensifies.
- Investor perspective: Investors are attracted by strong asset performance and low arrears, but are cautious about sustainability if standards slip. There is a focus on due diligence, transparency, and ensuring that growth is not achieved at the expense of credit quality.
Summary: The second charge market is likely to keep growing, supported by consumer demand and technological advances. However, maintaining high underwriting standards and responsible lending will be crucial to ensure long-term stability and investor confidence.
No deposit in, equity out: Mortgage markets at both ends of life
Loan-to-value (LTV) deposit alternatives and 100% mortgages
- In 2023, some UK lenders reintroduced 100% LTV mortgages, targeting borrowers with strong affordability but no deposit, such as first-time buyers without parental support. While these products address a market gap, they carry risks such as negative equity and require robust affordability assessments.
- (Perceived) risks in high LTV loans include:
- Negative equity – where the mortgage exceeds the property value;
- Lack of borrower “skin in the game” – although this is not always the main risk driver;
- Borrower affordability; and
- For primary residences, negative equity can persist longer than product protections last.
- Emotional investment in the home can influence borrower behaviour and risk.
- Lenders must ensure they are targeting the right customers and controlling for borrower affordability, making high LTV less of a problem.
Hyper-personalisation and affordability
- Lenders need to better understand individual financial situations and risk preferences. Some borrowers may be able to afford high LTV mortgages, but mainstream lenders often classify them as high risk because their products are not tailored for these profiles.
- Affordability assessments and product suitability are key – selling the right product to the right person is crucial:
- Affordability regulation: Regulators (e.g., the FCA in the UK) have emphasised robust affordability checks, especially for high LTV lending, to prevent a repeat of past financial crises.
- The market is moving towards hyper-personalised mortgage products.
- Emerging lenders are leveraging data and AI to assess individual risk profiles and offer more personalised mortgage products, including for a niche of customers who are underserved by mainstream products (e.g., self-employed, gig economy workers, or those with non-traditional credit profiles).
Market appetite and product innovation
- High LTV customers are more sensitive to cash flow, so lenders must carefully assess risk, as these borrowers often lack additional equity (or assets) other than the property itself.
- Lenders generate short-term income via the following structure:
- A platform company that handles all operational aspects, receiving 5% of the property sale price; and
- An investment vehicle through which the investment takes place.
- There is ongoing debate about whether today’s 100% LTV borrowers could become “mortgage prisoners” if property values fall or fixed rates expire.
Equity release and forward flow
- New models allow homeowners to access equity while remaining in their homes, and forward flow arrangements are being explored to create new property investment opportunities.
Summary: The UK mortgage market is seeing innovation at both ends: the reintroduction of 100% LTV mortgages for borrowers without deposits, and new models for releasing home equity. Lenders are leveraging technology and data to better assess affordability and serve underserved segments.
Securitisation reignited: What is fueling RMBS?
- RMBS figures: UK RMBS transactions traditionally make up one of the most important asset classes and the most relevant one historically to the securitisation market generally. Focusing on current figures, high street banks are using RMBS transactions both for funding transactions and risk transfers, although these are relatively small in volume. Funding products continue to be the key objective for non-bank lenders. In terms of public versus private deals, certainty of execution appears to be the main factor driving the preference for private issuances.
- Investor perspective: Spreads on various deals continue to be compressed.
- Deconsolidation trades versus traditional RMBS: Deconsolidation trades create tension compared with traditional RMBS funding transactions because the full capital stack of notes is sold, and investors are required to take equity risks. This has resulted in investors asking for stronger representations and warranties in legal documentation. While investors are expected to take equity risk in such transactions, banks maintain their position as lender of record, which creates inherent tension for both parties. These issues do not apply to traditional RMBS funding transactions.
- Other trends: High Street banks with active teams in the securitisation space are seeing pre-2008 transactions amortising over time, which has resulted in a reduction of refinancings compared with funding trades. Risk transfer volumes are relatively balanced. Technological innovations, such as the use of AI to expedite underwriting processes, are contributing to standardisation aspects of traditional RMBS transactions.
- UK versus EU securitisation regulations: The EU securitisation proposal, released by the European Commission in June 2025, aims to revitalise the market by reducing operational costs, simplifying reporting, and adjusting capital requirements for banks and insurers. In the UK, a similar principles-based strategy to reporting is anticipated, but no significant changes are expected in the foreseeable future.
Summary: Traditional RMBS transactions continue to play an important role within the wider sphere of securitisation, with both funding transactions and risk transfers helping to maintain deal volumes. Certainty of execution is a key factor driving increased market participation in private issuances compared with public issuances. Deconsolidation trades are creating tension relative to traditional RMBS transactions because they require investors to take equity risks. Recent developments, including the EU securitisation proposal, are expected to lead the UK to adopt similar strategies to streamline reporting requirements.
In-depth 2025-245