UK Mortgages review progressing – For the year ended 30 June 2020, UK Mortgages reports a fall in its asset value, from 82.06p to 80.59p, and a more substantial collapse in its share price, from 73.5p to 49.3p. The NAV total return for the period was 2.7%. The dividend was reduced from 5.625p to 4.5p but was still not covered by earnings, which were 2.3p (down from 2.6p).
This is all a bit moot, however. In July, a fund controlled by M&G bid for the company and, in fighting off the bid, the board promised a review of the company’s business, which is ongoing. The chairman says that the results of this review will be available in a few weeks.
The manager’s review of the year makes it clear that, ahead of the pandemic, it had reason to be upbeat. However, the panic that set into markets made it impossible to complete the planned refinancing of one of the company’s securitisation vehicles, Oat Hill No.1. (UKML buys mortgages – £1.64bn are in the portfolio at present – packages them together and sells off interest in them in tranches, retaining a geared exposure to the portfolio). Rate cuts depressed mortgage rates and borrowers were allowed to take mortgage payment holidays.
Across the portfolio, 19% of the company’s borrowers were taking a payment holiday at the peak but these were concentrated in owner-occupied loans originated by the Mortgage Lender, where at the peak 40% of outstanding loans were subject to a payment holiday. Buy-to-let loans appeared to be more resilient.
Eventually, the market settled down enough for the Oat Hill refinancing to happen. The overall proportion of the portfolio still taking payment holidays is down to 5%.
The manager is upbeat, noting that the spread between mortgage rates and the company’s financing costs has widened. It thinks that now is a good time to be lending.
Update 28 October – UK Mortgages review progressed!
At midday yesterday, the company said that the review has identified two potential options either:
to continue operating as a publicly traded investment company under a revised mandate offering increased focus on enhancing liquidity and returns; or
to proceed with an orderly wind-down of the company and returns of capital to its shareholders.
The board has concluded that there is a reasonable case to be made for both options, taking into account both the improved and improving outlook for the UK mortgage market and housing market, the success of the recent Oat Hill securitisation and the potential for further successful securitisation issues. At the same time, prospects for 2021 remain uncertain with a resurgence of COVID 19, rising unemployment and the planned ending of the stamp duty holiday.
The board intends to embark on a further round of consultation with shareholders and following this, it will make a firm recommendation and convene an Extraordinary General Meeting of Shareholders before the end of the year to vote on the proposals.
UKML : UK Mortgages review progressing