HBOS sells first debt securitisation since credit crisis started

HBOS, Britain's biggest mortgage lender, has sold £500m of mortgage-backed bonds in the first securitisation of debt supported by UK mortgages since the credit markets dried up summer.

The bank's shares rose on the news and were the third-best performers in the FTSE 100 index. HBOS sold the bonds through Permanent Master Issuer 2009-2, a vehicle designed to issue mortgage-backed debt. The bonds are backed by a pool of more than 570,000 Halifax mortgages with an average loan-to-value ratio of 61 per cent.

HBOS said it launched the securitisation after getting enquiries from investors in recent weeks. The bonds were sold to seven institutions, made up of banks and insurers in the UK and overseas.

The bonds, which have an average life of 3.6 years, pay interest of 85 basis points over inter-bank lending rates. Before the markets collapsed in August, the premium over inter-bank rates would have been about 10 basis points.

An HBOS spokesman said: "This is an important first step which underlines the strength of the HBOS name in the capital markets. The bank warned that it would take more time for the market begins to return to normal."

The market for securitised UK mortgages dried up as investors fled from asset-backed securities after defaults started to rocket on US sub-prime mortgages. But the Financial Services Authority has said it expects the market for easy-to-understand mortgage-backed bonds to return as a feature of the financial system.

The deal will be watched by rivals such as Alliance & Leicester, whose shares also rose yesterday, Abbey and Northern Rock. The state-owned bank has said it hopes to tap the capital markets again while relying more heavily on retail deposits.

European banks have continued to issue bonds backed by mortgages, with euro 57bn (£45bn) sold this year, about half the volume of a year earlier. But there was no demand for securities issued by UK banks.

The perceived risk of securities backed by UK mortgages has come down in recent weeks, with the yield premium over inter-bank rates falling to about 80 basis points from 100 points at the end of April.

The sale was managed by UBS, Citigroup and HBOS. HBOS shares rose 0.6 per cent to 465.25p.