Securitization is a popular funding source for Europe's mortgage lenders, particularly those from Britain, because it allows banks to raise funding and transfer balance sheet risk to investors. RMBS accounted for almost half of the new issues in the market during the first nine months of 2005, officials of the European Securitisation Fund said. Industry experts expect this dominance to remain unchallenged in the foreseeable future, despite some worries over the development of house prices.

"Stagnant and in some areas declining house prices are a concern, however interest rates remain low and arrears continue to be stable across Europe, therefore stable rating volatility and positive asset performance are expected," says a Fitch research note.

After a slow 2004, CMBS enjoyed a robust 2005 in Europe as more issuers took advantage of strong investor appetite. Funding costs in the bond market were so attractive that issuers sold CMBS even if they had to disclose more about their business practices than they would in the loan market.

"Based on our discussions with investors, we believe many have an increasing appetite for European CMBS," according to a research note by Barclays. "This can be because of the diversification benefits of CMBS in a general asset-backed security portfolio, or the need to find additional spreads to further enhance their current returns."