COMMENT: SAMs could change the mortgage market

Britain's stock of owner/occupied housing is apparently worth well over a trillion pounds. That's rather more than the entire quoted equity market in the UK and at least four times bigger than the gilts market. Yet it is also an asset base which remains entirely closed to institutional investors. Until now that is. SBC Warburg is next week launching an ingenious scheme for securitising the housing market, albeit in a small way to begin with, thus opening it up for the first time to pension funds, insurance companies and other institutional investors.

For pension funds, the possibility of investing in residential housing is obviously an attractive one, made the more so by the Government's abolition of tax credits on dividends. Though housing has come nowhere near enjoying the post-War return on equities, it is on the whole less volatile and over the long term pretty much inflation proofed.

Warburg is backing the security with what are called shared appreciation mortgages, or SAMs. In a SAM, the house owner gives up a proportion of any appreciation in the value of the property in return for a lower interest rate on the loan. Obviously this is not something anyone would want to do given the choice, but it does seem to hold attractions to certain types of borrower, especially those with negative equity and elderly "asset rich but cash poor" property owners.

Bank of Scotland is the only mortgage provider offering SAMs at present, and the take up in relation to the housing market as a whole is tiny. But properly marketed through intermediaries, SAMs could become a not insignificant part of the mortgage market. The really interesting question is whether, if this does prove a popular investment with institutional investors, it might in itself exert extra upward pressure on the housing market. Theoretically it should do, for it represents a previously untapped flow of funds into the sector. However, it would take a veritable explosion in this type of security to make much impact on a trillion pound market place. Warburg's initial offering is only pounds 130m worth.