The Board of UK Mortgages Limited has announced that the second transaction for UKML has been agreed. Since UKML’s launch, TwentyFour has sought a mortgage origination partner to facilitate an ongoing flow of mortgage loans that fit the investment policy. Over the past few months, the team has worked with The Mortgage Lender Limited (“TML”) to develop a suite of mortgage products and has signed a multiyear purchase agreement today.
In line with the structure described in UKML’s prospectus dated 23rd June 2015 UKML will again invest in profit participating notes (“PPNs”) issued by a dedicated acquisition company (“Corporate Funding”) which will purchase owner-occupied mortgage loans on an ongoing basis from TML. The initial capital commitment will enable the purchase of GBP250m of mortgage loan production over a
12 to 14 month period with the intention to deploy fresh capital on an on-going basis.
The portfolio will be created against a set of parameters designed to generate a high quality portfolio whilst achieving a commensurate yield in line with the UKML target. The expectation is for a portfolio of geographically diversified loans with an average LTV of 75% that will use market leading underwriting. TML will be the originator and legal title holder of the mortgages whilst acting as servicer for the mortgage borrowers. The product suite will go live on the 11th July 2016.
To supplement UKML’s funding for the ongoing acquisition of the mortgage loans, Corporate Funding has established a revolving loan financing facility with The Royal Bank of Scotland PLC, available for up to 2 years, thereby providing flexibility on the timing of the securitisation. The transaction’s capital allocation considers the first year of commitment and will be rebalanced over the course of the multiyear agreement. It is expected that the capital usage in the initial 14 months from investment will be around GBP72 million depending upon securitisation execution, representing the deployment of approximately 30% of UKML’s initial capital raise.
This transaction will establish leverage to a level expected to facilitate a AAA rating of senior securitisation debt when ramped in line with stated objectives. The absolute level of leverage is expected to be lower when compared to the inaugural transaction with Coventry Building Society as a function of credit profile and TwentyFour believes there is a compensating and appropriate risk-adjusted return. The return on the capital invested will vary over time, driven initially by the time required to ramp-up the portfolio, by composition of the actual portfolio and then by the yield on the underlying mortgages. The IRR on the capital allocated to the first year’s origination, over its life, is 9.49% gross to UKML* (assuming securitisation takes place as intended).
TwentyFour is working concurrently on other potential transactions and is increasingly optimistic about the profile of a third investment that is expected to utilise the remaining initial capital. Further updates will be provided as transactions are progressed.
The Mortgage Lender is a specialist lender based in Glasgow; it operates via the intermediary market and is run by an experienced and proven team with a successful track record of entrepreneurial growth in a regulated environment.
UKML : UK Mortgages agrees second transaction