Document Type

Case Studies


The key structures of housing finance in the UK in the years leading up to the global financial crisis of 2007-09 consisted of retail deposits, secondary market funding and wholesale interbank lending. Although retail deposits were the major funder of UK mortgages, secondary market funding, which included covered bonds and residential mortgage-backed securities (RMBS), accounted for 31% of UK mortgage lending in 2006. In 2007, the collapse of the U.S. subprime mortgage market triggered a financial shock, and the shock quickly traveled beyond national borders. Regardless of differences in the UK mortgage market, investors’ concern over the prospects of the U.S. housing market influenced their perception of UK mortgage-backed assets. And with the UK RMBS market substantially reliant on overseas investors, their concern contributed to a downturn in the UK market.

In a November 2008 report on mortgage finance by Sir James Crosby, it was argued that “[w]ithout intervention, the market in mortgage-backed securities won't return any time soon …” and that “the inability to refinance existing mortgage-backed funding and the continuing pressures in wholesale funding markets … [were] really hitting the banks’ capacity to make new loans …”. In response to this report, HM Treasury announced a £50 billion guarantee scheme for asset-backed securities (the Scheme) on January 19, 2009 and launched this Scheme on April 22, 2009.

The Scheme, in which HM Treasury provided a guarantee for eligible newly issued RMBS, represented an extension of the 2008 Credit Guarantee Scheme for unsecured debt issuance by UK incorporated banks and building societies. The Scheme aimed to support residential mortgage lending in the UK economy. The Scheme closed on December 31, 2009, without having been used.