Key Takeaways
- Our inaugural U.K. second-lien monitor tracks the collateral performance of second-lien mortgages in the RMBS transactions we rate. The data analyzed and presented only includes second- or subsequent-lien loans.
- We analyzed over 38,000 loans, with current balance totaling about £1.8 billion as of Q3 2024, drawn from 14 U.K. RMBS transactions.
- Of the loans analyzed, more than 6% are currently in arrears (one month or more). This figure is higher than the 0.8% observed in our Q2 2024 European RMBS Index for U.K. prime transactions but lower than the 9.2% for U.K. nonconforming post-2014 transactions.
- Second-lien buy-to-let loans performed slightly better than owner-occupied sub-products.
- In our analysis of loan-by-loan data, we observed a strong correlation between original loan-to-value (OLTV) ratios and delinquencies. Loans with OLTV ratios above 90% perform considerably worse in terms or delinquencies than loans with lower LTV ratios. OLTV ratios above 100% represent a fraction of the market and are mainly third or subsequent liens.
- The Appendix includes FAQs about how we compile the monitor, along with a list of transactions and their relative weightings.
Table 1
Second-lien--Key features | ||||
---|---|---|---|---|
Q3 2024 | ||||
Number of loans | 38,765 | |||
Total current balance (£) | 1,793,456,128 | |||
Average original balance (£) | 54,000 | |||
Average current balance (£) | 46,265 | |||
Owner-occupied (% of total current balance) | 90.9 | |||
Owner-occupied 90+ delinquencies (% of current balance) | 3.1 | |||
Owner-occupied WA original loan term (months) | 177 | |||
Buy-to-let (% of total current balance) | 9.1 | |||
Buy-to-let 90+ delinquencies (% of total current balance) | 2.9 | |||
Buy-to-let WA original loan term (months) | 153 | |||
WA interest rate margin (% of total current balance) | 7.8 | |||
Interest rate reversion margin (% of total current balance) | ||||
<=4 | 8.2 | |||
4-5 | 17.2 | |||
5-6 | 15.2 | |||
6-7 | 12.2 | |||
7-8 | 6.4 | |||
8-9 | 3.8 | |||
9-10 | 4.2 | |||
>10 | 33.0 | |||
WA average borrower's joint income (owner-occupied) (£) | 53,894 | |||
WA--Weighted-average. Q--Quarter. |
Table 2
Second-lien original loan-to-value ratios (%) and loan status (months in arrears) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
<40 | 40-50 | 50-60 | 60-70 | 70-80 | 80-90 | 90-100 | >100 | |||||||||||
Current | 95.2 | 96.0 | 93.7 | 93.8 | 93.3 | 93.1 | 90.0 | 85.3 | ||||||||||
1-2 | 2.1 | 1.2 | 2.9 | 2.4 | 2.4 | 1.7 | 1.5 | 2.3 | ||||||||||
2-3 | 0.5 | 1.1 | 0.6 | 1.1 | 1.1 | 0.7 | 1.4 | 1.1 | ||||||||||
3-4 | 0.4 | 0.3 | 1.2 | 0.8 | 0.9 | 0.5 | 0.4 | 0.7 | ||||||||||
4-5 | 0.3 | 0.4 | 0.2 | 0.4 | 0.5 | 0.7 | 0.4 | 0.5 | ||||||||||
5-6 | 0.2 | 0.2 | 0.2 | 0.3 | 0.3 | 0.5 | 0.5 | 0.1 | ||||||||||
>6 | 1.2 | 0.9 | 1.1 | 1.2 | 1.5 | 2.9 | 5.7 | 10.0 | ||||||||||
As of Q3 2024. |
Table 3
Total delinquencies | ||||
---|---|---|---|---|
(%) | Q2 2024 | |||
EMEA RMBS index | 3.9 | |||
U.K. second-lien* | 6.2 | |||
U.K. prime | 0.8 | |||
U.K. BTL post-2014 | 2.4 | |||
U.K. nonconforming post-2014 | 9.2 | |||
*Based on loan-by-loan data as of Q3 2024. Q--Quarter. BTL--Buy-to-let. Source: S&P Global Ratings' European RMBS Index Report Q2 2024. |
Table 4
Breakdown of second-lien total delinquencies Q3 2024 | ||||||
---|---|---|---|---|---|---|
Current balance (%) | Number of loans | |||||
Current | 93.8 | 36,585 | ||||
1-2 | 2.2 | 717 | ||||
2-3 | 0.9 | 298 | ||||
3-4 | 0.8 | 199 | ||||
4-5 | 0.4 | 150 | ||||
5-6 | 0.3 | 111 | ||||
>6 | 1.6 | 707 | ||||
Q--Quarter. |
Chart 1
Chart 2
Chart 3
Chart 4
Chart 5
Chart 6
Chart 7
Chart 8
Table 5
Ratings activity in second-lien transactions | ||
---|---|---|
Closing date | Surveillance analyst | |
Castell 2019-1 PLC |
Sept. 19, 2019 | Redeemed |
Castell 2020-1 PLC |
Sept. 30, 2019 | Redeemed |
Castell 2021-1 PLC |
Oct. 21, 2021 | Michael Dillon |
Castell 2022-1 PLC |
July 19, 2022 | Michael Dillon |
Castell 2023-1 PLC |
April 25, 2023 | Michael Dillon |
Castell 2023-2 PLC |
Nov. 15, 2023 | Michael Dillon |
Elstree Funding No.2 PLC |
Jan. 29, 2022 | Pratish Dcruz |
Elstree Funding No.3 PLC |
March 22, 2023 | Pratish Dcruz |
Elstree Funding No.4 PLC |
Feb. 22, 2024 | Pratish Dcruz |
Polo Funding 2021-1 PLC |
Oct. 21, 2021 | Arnaud Checconi |
Together Asset Backed Securitisation 2021-CRE1 PLC |
March 15, 2021 | Aarondeep Hothi |
Together Asset Backed Securitisation 2021-CRE2 PLC |
June 30, 2021 | Aarondeep Hothi |
Together Asset Backed Securitisation 2022-2ND1 PLC |
May 27, 2022 | Aarondeep Hothi |
Together Asset Backed Securitisation 2022-CRE1 PLC |
June 13, 2022 | Aarondeep Hothi |
Together Asset Backed Securitisation 2023-CRE-1 PLC |
Nov. 28, 2023 | Aarondeep Hothi |
Together Asset Backed Securitisation 2024-2ND1 PLC |
Jan. 19, 2024 | Aarondeep Hothi |
Fylde Funding 2024-1 PLC |
Oct. 9, 2024 | Vedant Thakur |
Summary Of Methodology For Our U.K. Second-Lien Monitor
What is included in the index?
The index mostly includes second- or lower-lien loans of U.K. transactions that we rate. Charts 1, 2, 3, and 8 use investor report data from "pure" second-lien transactions.
What is the definition of total delinquencies?
Total delinquencies are arrears for one or more calendar months.
Is the index loan count- or dollar-weighted?
We calculate the index based on the current balance of each loan. For transaction-specific charts, we weight the figures against the transaction's current balance.
When a transaction redeems, how does it affect the index? Does it affect the previous quarter(s)?
When a transaction redeems, it does not affect the index beyond that point or the reported values for previous quarter(s).
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 Q1 2023 for a quarterly reporting transaction, we include collateral data with a cut off only between Jan. 1, 2023, and March 31, 2023. For transactions that report monthly, we use the latest quarterly report.
Appendix
Transactions included in the monitor (loan-by-loan) | |
---|---|
Transaction | Weight (%) |
Castell 2023-1 PLC | 16.1 |
Castell 2023-2 PLC | 14.9 |
Together Asset Backed Securitisation 2024-2ND1 PLC | 14.5 |
Together Asset Backed Securitisation 2022-2ND1 PLC | 10.7 |
Elstree Funding No.4 PLC | 10.1 |
Castell 2022-1 PLC | 9.7 |
Castell 2021-1 PLC | 9.4 |
Elstree Funding No.3 PLC | 4.8 |
Polo Funding 2021-1 PLC | 4.7 |
Elstree Funding No.2 PLC | 2.9 |
Together Asset Backed Securitisation 2022-CRE1 PLC | 0.8 |
Together Asset Backed Securitisation 2021-CRE2 PLC | 0.8 |
Together Asset Backed Securitisation 2023-CRE-1 PLC | 0.5 |
Together Asset Backed Securitisation 2021-CRE1 PLC | 0.2 |
Related Research
- EMEA Structured Finance Chart Book, Oct. 16, 2024
- Highlights From S&P Global Ratings' European Structured Finance Conference 2024, Sept. 9, 2024
- European RMBS Index Report Q2 2024, Aug. 16, 2024
- Sector And Industry Variables Updated For European RMBS Criteria, July 26, 2024
- Legacy U.K. Buy-To-Let RMBS: Crunch Time For Arrears And Losses, July 18, 2024
- European ABS And RMBS: External Liquidity Reserves Withstand Rising Rates, March 22, 2024
- S&P Global Ratings' U.K. Second-Lien Mortgages Primer, Jan. 31, 2022
This report does not constitute a rating action.
Primary Credit Analyst: | Alastair Bigley, London + 44 20 7176 3245; Alastair.Bigley@spglobal.com |
Secondary Contact: | Feliciano P Pereira, CFA, Madrid +34 676 751 559; feliciano.pereira@spglobal.com |
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