Securitisation 2025

Securitisation in 2025: A Year of Opportunities and Challenges Across Evolving Markets

As we look toward 2025, the securitisation market stands at a critical juncture marked by economic resilience, regulatory shifts and evolving investor expectations. Throughout 2024, securitisation markets in most major economies, including the United States (US), United Kingdom (UK) and Europe, as well as the likes of India and Australia, have shown remarkable adaptability amid fluctuating interest rates, inflationary pressures and a strong investor appetite across select asset classes. This introduction provides a snapshot of the securitisation trends shaping the industry, covering issuance volumes, delinquency concerns and regulatory updates across a range of jurisdictions.

Issuance Trends

In 2024, the US remained the largest securitisation market globally, with robust issuance across asset-backed securities (ABS) and mortgage-backed securities (MBS) despite the continuing volatile rate environment. The first quarter of 2024 saw a surge in ABS issuance, reaching USD85.6 billion, a substantial 30.5% increase from Q1 2023. By October 2024, the total issuance surpassed USD300 billion for the first time, with auto ABS comprising 49.8% of the total figure. Much of this growth also stems from consumer loan securitisations, which benefited from early signs of rate stabilisation by the Federal Reserve and easing inflation. The non-agency residential mortgage-backed securities (RMBS) sector also exhibited resilience given investor confidence around stable US housing market fundamentals and low unemployment rates, despite concerns around affordability and high mortgage rates.

The RMBS sector in the UK has experienced a similar resurgence, marking a turnaround from the previous year's volatility-driven constraints on issuance. Early 2024 saw spreads tightening and increased origination activity, supported by a more stable interest rate environment. Prime UK RMBS issuance reached approximately GBP15 billion in the first half of 2024, compared to GBP9.5 billion during the same period in 2023. This represents a 58% year-on-year increase. UK issuers have adapted their business models to operate within the bounds of higher but steady rates, focusing on risk management to safeguard credit quality. Originations of fixed-rate mortgage products have grown, requiring careful hedging strategies to manage interest rate risks and overall being a shift that has ultimately strengthened the RMBS market’s appeal to investors.

In Europe, collateralised loan obligations (CLOs) surged, with the market on track to surpass 2021’s record of EUR39 billion in issuance. This high volume reflects robust demand and spread compression in investment-grade tranches, highlighting a renewed investor appetite for CLOs across both core European economies and emerging market segments. The synthetic securitisation sector in Europe, primarily focused on transferring corporate loan risk in the balance sheets of French and German banks, saw consistent growth due to favourable regulatory adjustments that reduced capital charges for banks issuing these securities.

Australia’s securitisation market experienced unprecedented growth in 2024, with issuances exceeding full-year 2023 levels by the third quarter (full-year 2023 issuances being approximately AUD35 billion, and Q3 2024 issuances surpassing AUD37 billion). This record-setting pace has been fuelled by substantial foreign investment, particularly in mezzanine tranches, reflecting an increased appetite for Australian RMBS and ABS products. The Australian market’s diversification into non-mortgage ABS, such as asset-backed securities linked to personal loans, has added depth to the sector and is likely to continue into 2025 as investors seek high-yield opportunities amid favourable macro-economic conditions.

The securitisation market in India remains on a strong growth trajectory, driven by high demand for infrastructure financing in urbanising regions. Public-private partnerships and regulatory policies geared towards infrastructure investment have attracted capital to transportation and energy projects, which in turn support securitisation volume growth. India’s focus on infrastructure securitisation within the Asia-Pacific region notably aligns with broader trends, with a 10% compound annual growth rate anticipated through 2025.

As for Latin America, Brazil takes the lead in securitisation issuance, accounting for over 80% of the volume for 2024. Predictions of market-wide issuance in Latin America now forecast a record high of approximately USD29.4 billion in 2024, with demand largely driven by local investors and supported by government-backed programmes encouraging funding for infrastructure and consumer credit. Emerging economies are also increasingly tapping into sustainable securitisation to attract foreign capital, particularly in green projects. Financial inclusion initiatives, such as microfinance securitisations in India and Kenya, are another significant trend, with local banks and non-banking financial institutions looking to structured finance solutions to fund small businesses and low-income borrowers. As regulatory frameworks evolve, securitisation may become a vital instrument for financing sustainable development, addressing funding gaps and spurring economic growth.

Interest Rates, Inflation and Delinquency

Interest rates and inflation have had a significant impact on the securitisation markets. In 2024, central banks across major economies, including the US Federal Reserve, the Bank of England and the European Central Bank (ECB), grappled with rate hikes designed to control inflation. These rate hikes significantly influenced the refinancing landscape and delinquency rates, particularly in consumer-focused ABS sectors like auto loans and personal credit.

In the US, ABS delinquency rates rose in response to higher borrowing costs, with sub-prime auto loans facing among the highest default rates in a decade. The recommencement of student loan payments, combined with dwindling pandemic-era savings, has strained household budgets, particularly among low-income borrowers. Consequently, investors have exhibited increased caution toward lower-rated consumer ABS products, gravitating instead toward business-oriented ABS with stronger balance sheet fundamentals.

As for UK business, securitised debt instruments have faced higher refinancing costs, with average rates on senior debt increasing from 4.5% to 7.0% over the past two years. These elevated rates have put pressure on cash flow, impacting the credit quality of securitised products backed by commercial assets. With corporate delinquencies expected to rise, particularly in sectors sensitive to labour cost increases and energy price volatility, UK issuers are increasingly turning to long-term fixed-rate products to mitigate refinancing risks.

The European commercial mortgage-backed securities (CMBS) market has also shown signs of distress, notably within the office space segment, where changing work patterns have led to rising vacancy rates and falling rent growth. Although the CMBS issuance volume rebounded in Q3 2024, delinquency rates are anticipated to rise from 4.8% to higher single digits as loans mature, potentially impacting investor sentiment in 2025. However, niche sectors like single-family rentals remain attractive, as high mortgage rates make renting a more affordable option for many households.

Australia’s securitisation market has benefited from relatively low delinquency rates, supported by low unemployment and a tight rental market. Prime RMBS issuance saw an uptick of approximately 50% in Q3 2024, underlining the stability of the Australian housing sector amid global economic uncertainty. However, Australian issuers remain vigilant about inflation’s impact on household spending and market participants are watching carefully for any signs of consumer credit deterioration.

Regulatory Developments

The securitisation regulatory landscape in 2024 has seen substantial changes across the US, the UK and the EU, with common themes focused on enhancing transparency, ESG integration and managing capital requirements. These regulatory updates are shaping the securitisation market by influencing investor confidence, guiding issuance strategies and addressing cross-jurisdictional challenges.

Enhanced transparency and disclosure requirements

In November 2024, both the UK Financial Conduct Authority (FCA) and the EU implemented new transparency rules aimed at increasing disclosure obligations for securitisation issuers. These requirements mandate detailed pre-transaction and post-issuance reporting, particularly for ESG-labelled products. The EU’s renewed focus on ESG securitisation is part of its Capital Markets Union (CMU) initiative, which seeks to attract green investment to fuel Europe’s green and digital transition.

Risk retention and ESG integration

The upcoming Basel III standards, effective January 2025, introduce temporary adjustments that reduce capital requirements on ESG-linked securitisation assets, which will allow banks to allocate more capital to sustainable projects without compromising on regulatory thresholds. However, securitisation issuance in green and ESG-focused products remains modest, reflecting the nascent stage of these asset classes and investor caution regarding standardisation gaps across jurisdictions.

Cross-jurisdictional challenges and divergence

The disparity in securitisation regulatory frameworks between the US and EU continues to present operational challenges, especially for cross-border transactions. For instance, US government-backed entities such as Fannie Mae and Freddie Mac play a crucial role in supporting the MBS market, providing significant liquidity to US mortgage securitisations. By contrast, the EU relies on private sector securitisations, with the European Investment Fund (EIF) offering only limited public guarantees. This structural difference impacts investor participation and places the EU at a competitive disadvantage in terms of liquidity and market size.

These regulatory developments underscore the securitisation market’s need for balance between growth and compliance. As new rules take effect, regulators are aiming to foster market stability, enhance investor protection and promote capital allocation toward environmentally and socially responsible projects. Nonetheless, diverging approaches between major jurisdictions continue to complicate cross-border issuance strategies, particularly as securitisation participants await potential post-election shifts in US, UK and Indian regulatory policies.

Opportunities and Emerging Themes for 2025

As securitisation markets navigate complex regulatory landscapes and macro-economic shifts, several emerging themes are poised to shape 2025 issuance trends.

Synthetic securitisation

Europe’s synthetic securitisation market, especially in France and Germany, has seen substantial activity as banks increasingly utilise synthetic products to manage balance sheet risk and meet stricter capital requirements. The inclusion of synthetic transactions in the EU’s Simple, Transparent, Standardised (STS) framework incentivises issuance by reducing regulatory burdens on eligible assets. This trend is likely to gain momentum as Basel III requirements come into full force, driving demand for synthetic securitisation as a risk management tool across European markets.

ESG securitisation

Investor interest in ESG-labelled securitisation products has grown, particularly in Europe, where policymakers continue to advocate for sustainable financing. The European Central Bank’s (ECB) first interest rate cut in June 2024 has provided further impetus for ESG investment, particularly in green RMBS and auto ABS linked to electric vehicles. Europe’s securitisation sector could see substantial growth if regulatory incentives and standardisation measures accelerate, with potential issuance in green finance projected to exceed EUR300 billion annually by 2030.

Infrastructure securitisation in Asia-Pacific

Rapid urbanisation and regulatory incentives in India and other Asia-Pacific markets are driving demand for infrastructure securitisation, particularly in sectors such as transportation and energy. India’s infrastructure-focused securitisation growth aligns with broader economic development goals, supported by public-private partnerships and investment-friendly policies. As the securitisation market in Asia-Pacific continues to mature, infrastructure securitisation is expected to become a critical financing tool for regional growth.

Conclusion: Securitisation Outlook for 2025 and Beyond

The securitisation market in 2025 will be shaped by an intricate interplay of economic, regulatory and structural factors. Stabilising interest rates, cautious investor optimism and regulatory developments aimed at supporting ESG integration and transparency are key trends expected to influence market activity. However, the divergent regulatory approaches across the US, UK and EU present ongoing challenges for cross-border securitisations, particularly in terms of compliance and investor protections.

As we head into 2025, elections in the US, UK and India are poised to influence economic policy and potentially shift regulatory priorities in the securitisation markets. The outcomes of these elections could affect interest rate trajectories, fiscal policies and ESG-related regulations, impacting both investor sentiment and issuance volumes. Coupled with global efforts to stabilise inflation and ease cost-of-living pressures, these developments set the stage for a securitisation market that must remain adaptable, resilient and responsive to a world in transition.

With markets ever evolving, securitisation will continue to be a dynamic financing tool, offering issuers opportunities to optimise balance sheets and investors access to diversified, structured credit products. The success of securitisation in the coming year will likely hinge on market participants’ ability to navigate regulatory complexity, manage delinquency risks in consumer and corporate sectors and harness opportunities in ESG, synthetic and infrastructure-linked asset classes. With the potential for further rate cuts and policy shifts in major jurisdictions, securitisation remains a vital tool for financing the global economy’s ongoing transformation.

Guide Introduction

As economic pressures and investor expectations reshape the securitisation landscape, the 2025 Chambers Securitisation Guide equips practitioners with essential insights into today’s transactions, including the structuring process, jurisdictional nuances and regulatory frameworks.

The Guide offers practical overviews of securitisation transactions across many jurisdictions. Each jurisdiction section details commonly securitised assets, transaction structures and popular regions for special purpose entities. Key documentation requirements, including asset transfers, covenants, warranties and credit enhancements, are also addressed. The Guide is intended to be accessible and practical, walking the reader through the cycle of a typical securitisation transaction, with a focus on all of the “need to know” transaction features.

The Guide includes updated guidance on structural features driven by regulatory developments affecting credit risk retention, transparency, investor disclosure standards and reporting requirements, together with tax and accounting rules that affect asset transfers, profits and the approach on legal opinions. Prepared by securitisation experts, the Guide serves as a useful resource, offering practical support for securitisation transactions across different jurisdictions. We welcome comments and feedback for future editions as the securitisation landscape continues to evolve.