Summary
- Our European RMBS indices track the performance to date of the transactions that we rate. Please refer to the summary below for frequently asked questions about our methodology for compiling the index.
- Overall, European RMBS collateral performance in most European jurisdictions was stable quarter-on-quarter. Some asset classes' performance improved, such as U.K. nonconforming pre-2014 and Italian transactions. Total delinquencies for U.K. nonconforming post-2014 collateral increased in the quarter, which to some degree reflects the assets' seasoning and the expected build-up of some arrears from a low level at transaction issuance.
- Prepayment rates are generally stable across Europe. U.K. buy to let (BTL) post-2014 and Ireland show the largest movements quarter-on-quarter. The U.K. BTL post-2014 prepayment index is prone to volatility, as some transactions temporarily show very high prepayment rates, as borrowers prepay when their fixed rate period ends. The expectation of rate rises may see borrowers refinance. However, whether this would directly drive prepayments depends on whether the financing can be accommodated within transactions and whether disincentives--such as prepayment penalties--are a feature of the underlying loans.
- For the remainder of 2022, across Europe we expect collateral performance to mildly deteriorate as the pressures of inflation and rate rises are felt. We expect certain asset classes, notably legacy U.K. nonconforming collateral and Irish reperforming, may have higher sensitivity to inflation and rate rises than is generally expected.
- This quarter's European RMBS index report includes interactive charts to capture data on total delinquencies, 90+ days delinquencies, prepayment rates, and total delinquencies for U.K. BTL post-2014 collateral. The interactive version is available at www.spratings.com (free of charge).
Table 1
Total Delinquencies | |||||
---|---|---|---|---|---|
(%) | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 |
All countries - index | 3.1 | 3.2 | 3.2 | 3.2 | 3.3 |
France and Belgium | 0.5 | 0.4 | 0.4 | 0.4 | 0.4 |
Italy | 1.4 | 1.8 | 2.0 | 2.3 | 2.5 |
Ireland | 7.1 | 7.1 | 4.9 | 7.9 | 6.9 |
Netherlands (excl. BTL) | 0.4 | 0.4 | 0.4 | 0.4 | 0.5 |
Netherlands BTL | 0.6 | 0.6 | 1.1 | 1.3 | 1.1 |
Portugal | 2.7 | 2.8 | 2.7 | 3.2 | 3.4 |
Spain | 6.5 | 6.8 | 6.4 | 6.1 | 6.1 |
U.K. prime | 0.9 | 0.9 | 1.0 | 0.9 | 0.9 |
U.K. BTL | 2.8 | 2.9 | 1.8 | 1.8 | 2.7 |
U.K. BTL - pre-2014 | 3.4 | 3.5 | 2.1 | 2.1 | 2.9 |
U.K. BTL - post-2014 | 1.0 | 0.9 | 0.8 | 0.7 | 0.2 |
U.K. nonconf | 11.3 | 11.6 | 12.6 | 13.1 | 12.6 |
U.K. nonconf - pre-2014 | 12.3 | 12.7 | 13.1 | 13.7 | 12.8 |
U.K. nonconf - post-2014 | 4.1 | 3.9 | 4.0 | 3.7 | 2.4 |
Table 2
Annualized Prepayment Rate | |||||
---|---|---|---|---|---|
(%) | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 |
All countries - index | 10.3 | 10.5 | 10.0 | 10.4 | 10.0 |
France and Belgium | 7.9 | 8.8 | 9.7 | 9.6 | 8.5 |
Italy | 5.0 | 4.2 | 4.7 | 5.0 | 5.1 |
Ireland | 6.2 | 9.3 | 6.7 | 6.8 | 6.4 |
Netherlands (excl. BTL) | 13.4 | 12.6 | 11.8 | 11.4 | 11.7 |
Netherlands BTL | 18.8 | 18.3 | 12.8 | 14.6 | 21.6 |
Portugal | 6.1 | 5.9 | 5.9 | 5.6 | 5.2 |
Spain | 4.5 | 4.6 | 4.1 | 4.1 | 4.1 |
U.K. prime | 19.3 | 19.5 | 18.0 | 21.2 | 22.1 |
U.K. BTL | 11.7 | 10.5 | 10.2 | 10.7 | 8.5 |
U.K. BTL - pre-2014 | 10.7 | 9.8 | 8.8 | 9.1 | 8.0 |
U.K. BTL - post-2014 | 15.6 | 13.5 | 15.9 | 16.6 | 13.0 |
U.K. nonconf | 12.0 | 12.4 | 11.5 | 11.5 | 9.8 |
U.K. nonconf - pre-2014 | 11.8 | 12.2 | 11.2 | 11.3 | 9.5 |
U.K. nonconf - post-2014 | 13.7 | 13.3 | 16.1 | 14.9 | 21.1 |
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Table 3
New Ratings Activity As Of March 2022 | ||||
---|---|---|---|---|
Deal | Closing date | Country | Asset class | Noteworthy features |
Jubilee Place 3 B.V. | Jan. 21, 2022 | Netherlands | BTL | RMBS transaction that securitizes a €345.1 million portfolio of BTL mortgage loans secured on properties located in the Netherlands. This is the third Jubilee Place transaction. The loans in the pool were originated by DNL 1 B.V. (26.5%; trading as Tulp), Dutch Mortgage Services B.V. (57.5%; trading as Nestr), and Community Hypotheken B.V. (16.0%; trading as Casarion). All loans were originated in 2021. |
Tower Bridge Funding 2022-1 PLC | Jan. 24, 2022 | U.K. | BTL | RMBS transaction that securitizes a portfolio of BTL and owner-occupied mortgage loans secured on properties in the U.K. The loans in the pool were originated between 2017 and 2021 by Belmont Green Finance Ltd., a nonbank specialist lender, via its specialist mortgage lending brand, Vida Homeloans. |
Twin Bridges 2022-1 PLC | Jan. 27, 2022 | U.K. | BTL | Static RMBS transaction that securitizes a portfolio of BTL mortgage loans secured on properties in the U.K. The loans in the pool were originated between 2016 and 2021, with most originated in 2021, by Paratus AMC Ltd., a non-bank specialist lender, under the brand of Foundation Home Loans. |
Elstree Funding No.2 PLC | Jan. 28, 2022 | U.K. | BTL | Static RMBS transaction that securitizes a portfolio of £284.55 million of U.K. mortgage loans. The pool comprises £109.03 million of second-lien (including 12.5% of second-lien BTL mortgage loans) and £175.51 million of first-charge BTL mortgage loans originated by West One Secured Loans Ltd., a wholly owned subsidiary of Enra Specialist Finance Ltd. |
Stratton BTL Mortgage Funding 2022-1 PLC | Jan. 28, 2022 | U.K. | BTL | Static RMBS transaction that securitizes a portfolio of £446.5 million BTL mortgage loans secured on properties located in the U.K. The loans in the pool were entirely originated by Landbay Partners Ltd. between 2017 and 2021. |
Finance Ireland RMBS No. 4 DAC | Feb. 3, 2022 | Ireland | Prime | Static RMBS transaction that securitizes a portfolio of €339.29 million owner-occupied mortgage loans secured on properties in Ireland. The loans in the pool were originated between 2016 and 2021 by Finance Ireland Credit Solutions DAC and Pepper Finance Corp. DAC. Finance Ireland is a nonbank specialist lender, which purchased the Pepper Finance Residential Mortgage business in 2018. |
Formentera Issuer PLC | Feb. 8, 2022 | U.K. | Non-conforming | RMBS transaction that securitizes well-seasoned mortgage loans currently held in Residential Mortgage Securities 23 PLC (subpool 1) and Uropa Securities PLC 2008-1 (subpool 2). The portfolio comprises first-lien U.K. owner-occupied loans (60%) and BTL mortgage loans (40%). There is a high proportion (91.4%) of interest-only loans in the pool. |
Polaris 2022-1 PLC | Feb. 8, 2022 | U.K. | Non-conforming | Polaris 2022-1 PLC is an RMBS transaction that securitizes a portfolio of owner-occupied and BTL mortgage loans that are secured over properties in the U.K. The loans in the pool were originated in 2021 by Pepper Money Ltd., a non-bank specialist lender. |
Harben Finance 2017-1 PLC | Feb. 18, 2022 | U.K. | BTL | The transaction is a refinancing of the Harben Finance 2017-1 transaction, which closed in April 2017. The pool comprises first-lien U.K. BTL residential mortgage loans that Bradford & Bingley PLC and Mortgage Express PLC originated. |
Ripon Mortgages PLC | Feb. 18, 2022 | U.K. | BTL | The transaction is a refinancing of the Ripon Mortgages PLC transaction, which closed in April 2017. The pool comprises first-lien U.K. BTL residential mortgage loans that Bradford & Bingley PLC and Mortgage Express PLC originated. |
Barley Hill No. 2 PLC | Feb. 28, 2022 | U.K. | Non-conforming | Static RMBS transaction that securitizes a portfolio of owner-occupied mortgage loans secured on properties located in the U.K. The loans in the pool were originated by The Mortgage Lender Ltd. We consider the collateral to be nonconforming, as the pool includes complex income borrowers and there is a high exposure to self-employed borrowers (50.6% of the outstanding balance) and first-time buyers (31.2%). In addition, borrowers with prior county court judgments account for 14.3% of outstanding balance. |
Clavel Residential DAC | March 8, 2022 | Spain | Reperforming | Clavel Residential DAC is a static RMBS transaction. The pool of €175,590,000 comprises 2,832 loan parts originated by Catalunya Banc S.A., Caixa d'Estalvis de Catalunya, Caixa d'Estalvis de Tarragona, and Caixa d'Estalvis de Manresa. The assets are primarily first-ranking owner-occupied loans secured against properties in Spain. The portfolio is concentrated in Catalonia (73.51%) and contains 92% of restructured loans. |
Shamrock Residential 2022-1 DAC | March 11, 2022 | Ireland | Reperforming | Static RMBS transaction that securitizes a portfolio of €574.79 million loans (excluding €3.35 million of loans subject to potential write-off), which consist of owner-occupied and BTL primarily reperforming mortgage loans secured over residential properties in Ireland. The securitization comprises two purchased portfolios, Bay, representing 51.35% of the pool, and Barrow, representing 48.65% of the pool, which aggregate assets from six Irish originators. |
Stanlington No. 2 PLC | March 14, 2022 | U.K. | Non-conforming | Static RMBS transaction that securitizes a portfolio of £295.12 million owner-occupied and BTL mortgage loans secured on properties in the U.K. The pool is well seasoned. Most of the loans are first-lien U.K. owner-occupied and BTL residential mortgage loans. There is high exposure to interest-only loans in the pool at 94.1%, and 8.2% of the mortgage loans are currently in arrears greater than (or equal to) one month. |
BBVA RMBS 21 FT | March 23, 2022 | Spain | Prime | BBVA RMBS 21 is a static RMBS transaction. The €12,399,999,730 pool comprises 115,736 mortgage loans, originated by Banco Bilbao Vizcaya Argentaria S.A., Catalunya Caixa S.A., and Unnim Banc (the last two are now part of BBVA). The assets are first-ranking mainly owner-occupied loans secured against properties in Spain. The portfolio comprises loans not in arrears for more than 30 days, which were securitized in previous BBVA RMBS transactions, and some 13% of newly originated loans. |
Summary Of Methodology For Our European RMBS Index
What is it included in the European RMBS Index?
We include a transaction once nine months have elapsed since the closing date. This is because we expect that performance developments of a transaction are likely not to be visible immediately after closing. As the index is current balance weighted, including transactions with less than nine months of performance will lower the denominator of the index and may give an overly positive impression of performance.
Are esoteric RMBS transactions included?
We assess this on a case-by-case basis. By way of example, equity release (reverse mortgage) nonperforming transactions backed by residential mortgages are excluded, while reperforming RMBS transactions are included.
What is the data source?
It is compiled form investor reports, and as such is based on each transaction's definition of arrears.
Is it loan count or "dollar" weighted index?
The index is calculated as the current balance of loans in each arrear status (as reported in the investor reports), divided by the current balance of each transaction (as reported in the investor reports). As such, in some countries where there are a limited number of transactions forming the index, larger transactions will drive the overall group.
When a transaction redeems, how does it affect the index? Does it affect the past quarter(s)?
When a transaction redeems it does not contribute to the index beyond that point. It has no effect on reported values for previous quarters.
When do we cut off the index for a given quarter?
The cut off is based on the period covered in investor reports. For example, if the index covers the period up to first-quarter 2022, for a quarterly reporting transaction only collateral data with a cut- off between Jan. 1, 2022, and March 31, 2022 is included. For transactions that report monthly, we use the latest report from the quarter.
Both pre- and post-2014 indices are presented. How is this classification performed?
This is based on the origination date of the assets. If a pool of assets is split equally between pre- and post-2014 vintages, we will assess on a case-by-case basis whether it is included in the pre- or post-2014 index.
Why do prior quarter's numbers sometime change?
There are two main reasons:
- Data can be amended by the servicer/party providing the investor report.
- Newer data for the most recent quarter is available. For example, in a transaction that reports monthly, if we receive data until February 2022 when producing the first-quarter 2022 index, we will use the data up until that date. However, if we then receive March 2022 data when producing the following quarter's index, we will backfill first-quarter 2022 for that transaction with the March 2022 data.
How are transactions that contain a mixture of BTL and owner-occupied collateral classified?
For countries with separate BTL and owner-occupied indices, for example U.K. and Netherlands, we typically classify the transaction based on which portion of the collateral is the largest at the issuance date. For example, if a pool had 60% BTL collateral and 40% owner-occupied collateral at closing, it would form part of the BTL index. If the relative split of BTL and owner-occupied reversed due to prepayment or amortization, we would not typically change the classification.
How is nonconforming categorized?
There is no standard market definition of nonconforming. Broadly speaking, nonconforming collateral does not meet the definition of prime. This is typically due to the pool having material exposures to borrowers with previous adverse credit such as prior mortgage arrears and country court judgements, and/or significantly complex income. The assessment of whether a pool is nonconforming can be subjective and is disclosed in related ratings commentary.
Where do second-charge transactions appear in the index?
They are based on the categorization of the transaction. We do not include them as s separate index as currently there are just a handful of transactions.
Related Research
- Residential Mortgage Market Outlooks Maintained For 15 European Jurisdictions Following Revised Economic Forecasts, April 28, 2022
- What Is Prefunding And How Does It Affect U.K. RMBS Transactions?, March 24, 2022
- Asset Price Risks: Inflated Property Values Mean Higher Loss Assumptions In European RMBS And Covered Bonds, March 21, 2022
- The Future Of U.K. Nonbank Mortgage Lending And How It Will Affect RMBS, Feb. 9, 2022
- European RMBS Outlook 2022: Performance And Issuance At A Crossroads, Jan. 27, 2022
- Credit FAQ: How We Analyze Small Ticket Commercial Real Estate Assets In European Structured Finance, Jan. 19, 2022
- European RMBS Market Update Q2 2021, Aug. 16, 2021
This report does not constitute a rating action.
Primary Credit Analyst: | Alastair Bigley, London + 44 20 7176 3245; Alastair.Bigley@spglobal.com |
Secondary Contacts: | Giovanna Perotti, Milan + 390272111209; Giovanna.Perotti@spglobal.com |
Feliciano P Pereira, CFA, Madrid + 44 20 7176 7021; feliciano.pereira@spglobal.com |
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