Belmont Green readies 3rd as-yet unsized U.K. nonprime RMBS

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Belmont Green Finance Ltd is preparing its third securitization of U.K. residential mortgages, according to rating agency presale reports.

The size of the transaction, dubbed Tower Bridge Funding No. 3 plc, has yet to be determined. However, the initial collateral consists of 1,737 loans totaling £375.5 million, and there will be a £125 million prefunding account that can be used to acquire additional collateral before the first interest payment date.

All of the loans were originated by Belmont Green through the Vida Homeloans brand since the third quarter of 2017. BGFL will be the mortgage portfolio servicer but will delegate to Homeloan Management Ltd. BGFL is a specialist U.K. lender that offers a full suite of mortgage products including owner-occupied, buy-to-let (adverse credit history, interest-only and second-charge) loans.

The portfolio comprises a high concentration of buy-to-let loans (72.4% ). In the U.K. it is common for mortgages to landlords to pay only interest, and no principal, so there is also a high interest-only concentration (73%) across the entire portfolio. Approximately 57.3% of the portfolio consists of buy-to-let loans to borrowers with at least one other rental property, and 13.8% has at least eight other rental properties. Moreover, 52.5% of the portfolio is a buy-to-let mortgage with a five-year fixed-rate period. These are subject to payment shock when the rates reset; however Belmont Green does not assess whether the borrowers could afford the higher payment in a “stress” scenario, according to DBRS.

Strengths of the transaction include its asset quality. The average original loan-to-value of 68.97%, which is slightly less than the average for the U.K. non-conforming sector, according to Moody’s Investors Service; DBRS puts it slightly higher at 69.1%.

Both Moody’s and DBRS expect to assign triple-A ratings to the senior tranche of notes, which benefit from 20% credit support, consisting of 17.5% subordination of the remaining tranche of notes and a 2.5% reserve fund.

The class B tranche with 14.25% credit support is also rated AAA by DBRS but Moody’s rates it one notch lower at Aa2.

Barclays Bank and J. P. Morgan Securities are the joint arrangers.

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