Leeds Building Society is marketing securities backed by a £700 million ($1.06 billion) pool of U.K. prime residential mortgages from its Albion U.K. RMBS trust. The deal follows a two-year pause in RMBS issuance for the U.K. mortgage lender.
Albion No 3. is the third series of bonds to be issued from the trust. Albion 2 was issued in July 2013.
Barclays Bank and the Royal Bank of Scotland are the lead managers.
Moody’s Investors Service and Fitch Ratings assigned preliminary ratings of ‘Aaa’/ ‘AAA’ to the senior bonds to be issued by the trust. The bonds have a legal final maturity date of December 2058 and benefit from 12.5% credit enhancement.
An unrated series Z variable funding notes will also be offered. Sizing on the tranches is yet to be determined, according to the presale report.
The deal is backed by mortgages to prime U.K. borrowers. The loans have a remaining term of 23.3 years and have paid monthly installments for 1.2 years. First-time borrowers account for 28.56% of the portfolio, which is slightly higher than what is generally seen in other UK prime transactions, according to Fitch, However all of the borrowers have strong credit histories; 99.2% have never been delinquent on a mortgage payment.
Although 91.2% of the loans in the pool pay an initial fixed rate of 3.09%, at the end of a term that can last up to five years, the rate switches to LBS’s standard variable rate (SVR), which is currently 5.69%.
“When borrowers come to the end of their fixed rate periods (up to five years), they may be at risk of payment shock, given the large differences between the fixed rate and the SVR," Fitch stated in its presale report. LBS takes into account interest rates increasing to over 7.5% in its affordability calculation; Fitch has nevertheless increased its expectation for the frequency of foreclosure of the loans by 10%.