European RMBS Outlook 2021

In this report, we look back at the issuance and credit trends we observed in the U.K., Dutch, Spanish, Italian, French, and Irish residential mortgage-backed securities (RMBS) markets through 2020 and examine what they may mean for developments in 2021 and beyond. The COVID-19 pandemic will leave a mark on RMBS credit metrics and issuance volumes, but it will likely also accelerate innovation in mortgage products and origination practices in the medium term. In addition, an increasing focus on ESG factors could lead to an increase in green mortgage production. Expected longer term product development is discussed in more details on page 33. In 2020, we reassessed our outlook for European mortgage markets, but this led to only limited RMBS

...- Although the major European RMBS markets all entered the COVID-19 pandemic in a relatively comfortable situation from a macroeconomic point of view, all of them suffered a severe economic downturn in 2020. We expect unemployment rates in these countries to rise by 1%-2% through 2021. - The willingness and capacity of governments and banking sectors to cushion the shock of the pandemic will determine the scale and pace of any rise in arrears for the mortgage collateral backing RMBS transactions. - Central banks' response to the pandemic saw them revive their large-scale provision of cheap term funding for credit institutions, which will likely stifle bank-originated structured finance supply once again. In the longer term, RMBS issuance may be bolstered as borrowers affected by COVID-19--with complex income or minor adverse credit--are forced away from the high street to capital markets-funded specialist lenders. - COVID-19 will likely accelerate the pace of change in mortgage lending...

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