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Mortgage Securitisation What is it all about?

Most of you who are reading this will, most likely, have a residential mortgage, including all you ‘buy to let’ landlords, but I doubt any of you have ever heard of mortgage securitisation, let alone know how it may have affected you and your loans.

Most lenders in the UK offer loans to enable you to buy property, all backed by a mortgage granted by you (not the lender, the deal is the other way round!) and it is the mortgage which acts as the security for the loan.

Most people believe that the security is the property, however, the property is an underlying security. If you really think about it sensibly, how on earth can the loan be secured by the property when you haven’t bought it yet?

You need the loan money to buy the property so, what is the actual security you give to the lender in order for them to give you the loan?

Believe it or not, the main security is your pledge to pay the loan back, with interest, over a defined but fluid length of time.

Your pledge to pay is actually a ‘promissory note’ as defined by the Bills of Exchange Act 1882. It is treated no differently by your lender, than the paper ‘money’ in your pocket which, as you can see by looking at it, is also a promise!

The bank notes, the word “note” being the operative word, are just that, a note, on a piece of paper, saying that it is a ‘promise’ to pay money to you who, in this case, is the ‘bearer’ or person owning the note.