A well-seasoned collection of £470.3 million in prime "buy-to-let" residential mortgages is being securitized by the UK's third-largest building society.

Offa No.1 PLC is the third pool of buy-to-let loans originated by Godiva Mortgages, a subsidiary of the Coventry Building Society, and the first in nearly four years securitized by the savings and mortgage mutual institution. The sizing of the tranches has yet to be determined, according to a presale report from Moody’s Investors Service, but 92.5% of them will be slated for a triple-A rated, floating-rate Class A tranche and the remainder to unrated Class Z variable funding notes.

The Class A notes are supported with 10% credit enhancement, a 2.5% reserve fund and benefit from a lower-than-average expected loss rate of only 0.9% (lower than two previous securitizations of Coventry loans) because of the low weighted-average loan-to-value ratio of 51.7% for the pool of loans.

The pool of first-rank loans consists of borrowings from 4,242 prime borrowers in England and Wales, with an average exposure of £119,881 to the pool. The underlying loans have an average seasoning of 4.75 years, and no history of late payments beyond 30 days. Moody’s reports 90% have never been in arrears and another 6.7% have only been late for less than month.

The loans are mostly a mix of standard variable rates (30.3% of loans in the pool) and fixed-rate (38.9%).

Lloyds Bank is the arranger.

The previous securitizations of Godiva mortgages were in 2012, when the Mercia No.1 plc and Leofric No.1 plc trusts issued notes totaling £1.6 billion and £1.12 billion, respectively.  Those securitizations consisted of individual investor loans of much more recent vintage (the loans in the Mercia pool  had an average seasoning of 2.45 years, for example).

The future of individual buy-to-let mortgage securitization is murky in the UK. Tax law changes coming to the UK this year will allow individual tax breaks for investor property to expire and higher stamp duty fees are being introduced for financial individual investor homes. It is expected more buy-to-let mortgages will be taken out by professional landlords.

In January UK's Paragon Mortgage announced it would be scaling back securitizations and instead use its increased deposit base at parent Paragon Bank to fund originations of buy-to-let mortgages.

 

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