Summary
- Our European RMBS index tracks the collateral 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 remained stable in Q4 2022, even though the U.K. pre-2014 buy-to-let (BTL) and nonconforming spaces showed signs of pressure. Volatility in delinquencies in Spain reflects changes in the index composition, and in Ireland, a combination of changes in the index composition and performance variation.
- Dutch BTL has seen decreased arrears in virtually all transactions we rate. This can be partially explained by decreasing arrears in some large borrowers' exposures, which typically characterize this asset class in the Netherlands.
- This quarter, we have included a new feature (table 3) in which we display the most recent changes in quarter-on-quarter total delinquencies by number of transactions in each country/group. As the overall index is current balance-weighted, we are showing the evolution on an equally-weighted basis to improve understanding of market trends.
- For most transactions, arrears have remained in the +-2 percentage points range compared to Q3 2022. As mentioned, the U.K. pre-2014 nonconforming index is an outlier, with 13 out of 61 transactions experiencing increased arrears above two percentage points.
- As expected in our Q4 RMBS market update, most jurisdictions that have substantially more borrowers who are on variable rates showed increased prepayments as borrowers elected to deleverage and lower future interest costs. As such, prepayment rates have marginally increased across Europe, with U.K. prime transactions continuing to have high levels.
- Overall, we expect the credit performance of mortgage collateral backing RMBS to deteriorate in 2023. Nonetheless, forbearance and government assistance could mitigate the speed and severity of any deterioration. While lower speculative-grade RMBS ratings could come under pressure, we expect structural protections, proactive servicing, and transaction deleveraging to ensure the ratings remain broadly stable.
Table 1
| Total Delinquencies (%) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | ||||||||
| All countries - index | 3.4 | 3.3 | 3.2 | 3.1 | 3.2 | |||||||
| France and Belgium | 0.4 | 0.5 | 0.5 | 0.4 | 0.4 | |||||||
| Italy | 1.6 | 1.6 | 1.4 | 1.5 | 1.8 | |||||||
| Ireland | 5.7 | 4.6 | 4.4 | 7.5 | 7.2 | |||||||
| Netherlands (excluding BTL) | 0.3 | 0.3 | 0.4 | 0.4 | 0.4 | |||||||
| Netherlands BTL | 0.1 | 0.6 | 0.5 | 0.6 | 0.6 | |||||||
| Portugal | 3.6 | 3.6 | 2.7 | 2.7 | 2.8 | |||||||
| Spain | 5.6 | 8.1 | 7.9 | 6.5 | 6.8 | |||||||
| U.K. prime | 1.1 | 1.1 | 1.0 | 0.9 | 0.9 | |||||||
| U.K. BTL | 3.5 | 3.2 | 2.9 | 2.8 | 2.9 | |||||||
| U.K. BTL - pre-2014 | 4.9 | 4.2 | 3.7 | 3.4 | 3.5 | |||||||
| U.K. BTL - post-2014 | 1.0 | 0.9 | 0.9 | 1.0 | 0.9 | |||||||
| U.K. nonconf | 11.8 | 10.5 | 10.4 | 10.9 | 11.6 | |||||||
| U.K. nonconf - pre-2014 | 13.2 | 11.2 | 11.2 | 11.5 | 12.0 | |||||||
| U.K. nonconf - post-2014 | 3.0 | 3.4 | 3.1 | 3.0 | 4.3 | |||||||
| BTL--Buy-to-let. Q--Quarter. | ||||||||||||
Table 2
| Annualized Prepayment Rate (%) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | ||||||||
| All countries - index | 11.4 | 11.4 | 10.9 | 10.3 | 10.5 | |||||||
| France and Belgium | 5.5 | 7.7 | 8.7 | 8.9 | 8.8 | |||||||
| Italy | 3.5 | 3.6 | 4.6 | 4.6 | 4.2 | |||||||
| Ireland | 8.4 | 9.7 | 5.8 | 4.7 | 8.6 | |||||||
| Netherlands (excluding BTL) | 7.5 | 10.7 | 12.8 | 12.8 | 12.6 | |||||||
| Netherlands BTL | 14.4 | 20.5 | 23.7 | 18.8 | 18.3 | |||||||
| Portugal | 7.2 | 6.1 | 6.4 | 6.2 | 5.9 | |||||||
| Spain | 6.9 | 5.5 | 5.0 | 4.4 | 4.6 | |||||||
| U.K. prime | 25.9 | 23.4 | 17.8 | 17.6 | 19.5 | |||||||
| U.K. BTL | 18.3 | 14.7 | 13.1 | 11.7 | 10.5 | |||||||
| U.K. BTL - pre-2014 | 19.8 | 15.5 | 12.3 | 10.8 | 9.8 | |||||||
| U.K. BTL - post-2014 | 16.7 | 13.7 | 16.3 | 16.5 | 13.5 | |||||||
| U.K. nonconf | 17.5 | 13.9 | 13.3 | 12.7 | 12.4 | |||||||
| U.K. nonconf - pre-2014 | 17.8 | 13.5 | 12.6 | 11.8 | 12.1 | |||||||
| U.K. nonconf - post-2014 | 16.0 | 18.8 | 19.6 | 23.6 | 18.4 | |||||||
| BTL--Buy-to-let. Q--Quarter. | ||||||||||||
Table 3
| Total Delinquencies Change (Q4 2022 Versus Q3 2022) - Number Of Transactions | ||||||||
|---|---|---|---|---|---|---|---|---|
| Total delinquencies decrease by more than two percentage points | Total delinquencies increase by more than two percentage points | Total delinquencies are stable (change between -2 percentage points and +2 percentage points) | ||||||
| All countries - index | 3 | 14 | 246 | |||||
| France and Belgium | -- | -- | 6 | |||||
| Italy | -- | -- | 16 | |||||
| Ireland | -- | 1 | 14 | |||||
| Netherlands (excluding BTL) | -- | -- | 27 | |||||
| Netherlands BTL | 2 | -- | 10 | |||||
| Portugal | -- | -- | 15 | |||||
| Spain | -- | -- | 57 | |||||
| U.K. prime | -- | -- | 9 | |||||
| U.K. BTL | 0 | 0 | 40 | |||||
| U.K. BTL - pre-2014 | -- | -- | 19 | |||||
| U.K. BTL - post-2014 | -- | -- | 21 | |||||
| U.K. nonconf | 1 | 13 | 52 | |||||
| U.K. nonconf - pre-2014 | 1 | 13 | 47 | |||||
| U.K. nonconf - post-2014 | -- | -- | 5 | |||||
| BTL--Buy-to-let. Q--Quarter. | ||||||||
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Table 4
| New Ratings Activity As Of December 2022 | |||||
|---|---|---|---|---|---|
| Closing date | Country | Asset class | Analyst | Noteworthy features | |
| Parkmore Point RMBS 2022-1 PLC | Oct. 4, 2022 | U.K. | Nonconforming | Vedant Thakur | Static RMBS transaction that securitizes a portfolio of £267.2 million owner-occupied and BTL mortgage loans secured on properties in the U.K. These loans were previously securitized in Residential Mortgages Securities 29 PLC, Residential Mortgages Securities 30 PLC, and Residential Mortgages Securities 31 PLC. Of the pool, 71.1% of the loans are in arrears, with 62.7% of that portion in severe arrears (90+ day arrears). However, the average payment rate on the portfolio is above 80%, and most of the severe arrears loans have been consistently paying above 70% over the past three years. |
| Dutch Property Finance 2022-2 B.V. | Oct. 6, 2022 | Netherlands | BTL | Feliciano Pereira, CFA | The ninth Dutch Property Finance transaction issued. Most of the loans in the pool were originated in 2021 and 2022 (65%). About one-third of the pool comprises mortgages previous securitized in RNHB's inaugural transaction, Dutch Property Finance 2017-1. |
| Lanebrook Mortgage Transaction 2022-1 PLC | Oct. 12, 2022 | U.K. | BTL | Josh Timmons | The transaction securitizes a portfolio of £343 million buy-to-let (BTL) mortgage loans secured on properties in the U.K. The loans in the pool were originated between 2021 and 2022 by The Mortgage Lender Ltd., a nonbank specialist lender, under a forward flow agreement with Shawbrook Bank PLC. |
| Canada Square Funding 7 PLC | Oct. 13, 2022 | U.K. | BTL | Aarondeep Hothi | Static RMBS transaction that securitizes a portfolio of £237.4 million BTL mortgage loans secured on properties located in the U.K. The transaction is a refinancing of Canada Square Funding 2019-1 PLC, which closed in October 2019. The loans in the pool were originated by Fleet Mortgages Ltd. between 2016 and 2019. |
| Finance Ireland RMBS No.5 DAC | Oct. 24, 2022 | Ireland | Prime | Philip Bane | Static RMBS transaction that securitizes a portfolio of €412.97 million owner-occupied mortgage loans secured on properties in Ireland. The loans in the pool were originated between 2016 and 2022 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. The pool comprises warehoused loans newly originated by Finance Ireland (78.3%) and loans that were previously a part of the Finance Ireland 1 transaction (21.7%). The collateral comprises prime borrowers, and there is a high exposure to first-time buyers. |
| Shamrock Residential 2022-2 DAC | Oct. 31, 2022 | Ireland | Reperforming | Nicolas Cabrera, CFA | Static RMBS transaction that securitizes a portfolio of €514 million loans which comprise owner-occupied and BTL primarily reperforming mortgage loans secured over residential properties in Ireland. The securitization comprises four purchased portfolios, Bass (26.4% of the pool), Prodigal (22.6%), Peacock (13.2%), and Cannes (37.8%). The loans in the Bass portfolio were originated by Permanent TSB PLC and the loans in the Prodigal subpool were originated by GE Capital Woodchester Home Loans Ltd. and Leeds Building Society. The Cannes and Peacock portfolios aggregate assets from nine different originators. |
| Temple Quay No.1 PLC | Nov. 1, 2022 | U.K. | Nonconforming | Aarondeep Hothi | Static RMBS transaction that securitizes a portfolio of £507 million owner-occupied and BTL mortgage loans secured on properties in the U.K. The loans in the pool were originated by Bank of Ireland (UK) PLC, The Governor and Company of the Bank of Ireland (U.K. Branch), Bank of Ireland Home Mortgages Ltd., and Bristol & West PLC between 1982 and 2022. Of the pool, 46.3% of the loans are in arrears, with 30.6% of the pool in severe arrears (90+ day arrears). Of the pool, 10.3% is considered reperforming. |
| PRPM Lagado 2022-1 DAC | Nov. 4, 2022 | Ireland | Nonconforming | Nicolas Cabrera, CFA | Static RMBS transaction that securitizes a €691 million portfolio of loans, comprising owner-occupied and BTL nonperforming mortgage loans secured over residential and commercial properties in Ireland. Of the pool, 83.2% is in long-term arrears of three months or more, while 15.7% is current. Allied Irish Banks PLC (AIB), Anglo Irish Bank, Bank of Scotland (Ireland), Danske Bank, GE Capital Woodchester Home Loans, Irish Nationwide Building Society, and KBC Bank Ireland originated the loans, with most loans originated between 2004 and 2010. |
| Twin Bridges 2022-3 PLC | Nov. 7, 2022 | U.K. | BTL | Aarondeep Hothi | 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 2015 and 2022, with most originated in 2022. Paratus AMC Ltd. originated 96.8% of the pool, while 3.2% of the pool was originated under the lending platform established by Landbay Partners Ltd. We consider the collateral prime based on the overall historical performance of the originator's mortgage book, the conservative underwriting criteria, and loan performance in the securitized pool. |
| Jubilee Place 5 B.V. | Nov. 11, 2022 | Netherlands | BTL | Maxime Pontois | Static RMBS transaction that securitizes a portfolio of BTL mortgage loans secured on properties located in the Netherlands. This is the fifth Jubilee Place transaction. The loans in the pool were originated by DNL 1 B.V. (DNL; 23.1%; trading as Tulp, Dutch Mortgage Services B.V. (DMS; 62%; trading as Nestr), and Community Hypotheken B.V. (Community; 15.3%; trading as Casarion). All three originators are new lenders in the Dutch BTL market, with a very limited track record. |
| Valsabbina RMBS SPV S.R.L. | Nov. 29, 2022 | Italy | Prime | Giovanna Perotti | Prime RMBS transaction that securitizes a pool of Italian residential mortgages originated by Banca Valsabbina S.c.p.A. mainly granted to individuals. The transaction has a three-month ramp-up period, unless an early purchase termination event occurs, subject to several conditions being met. The portfolio is concentrated in the Lombardia region (78.49%), particularly in the province of Brescia, where the originator's headquarters and most of its branches are located. |
| FCT Elide II Compartiment 2022-01 | Nov. 30, 2022 | France | Prime | Florent Stiel | RMBS transaction originated and serviced by BRED Banque Populaire S.A., which is part of the second-largest retail banking group in France, Groupe BPCE. This originator has previously executed several private and public cash and synthetic securitizations. The share of civil servant borrowers in the closing pool is 33% and the pool had no delinquent or defaulted loans at that point. |
| BBVA RMBS 22, FT | Dec. 1, 2022 | Spain | Prime | Isabel Plaza | Static RMBS transaction backed by assets that are primarily first-ranking owner-occupied loans secured against properties in Spain. The €1.399.981.745 pool comprises 9,549 mortgage loans, originated by Banco Bilbao Vizcaya Argentaria S.A. (BBVA), Catalunya Caixa S.A., and Unnim Banc (the last two are now part of BBVA). Flexible loans represent 75% of the portfolio. |
| Shawbrook Mortgage Funding 2022-1 PLC | Dec. 13, 2022 | U.K. | BTL | Arnaud Checconi | Static transaction that securitizes a portfolio of £574 million BTL mortgage loans secured on properties in the U.K. The loans in the pool were originated between 2016 and 2022 by Shawbrook Bank Ltd., a specialist lender, wholly owned by Shawbrook Group PLC. The collateral primarily comprises loans granted to experienced professional landlords, none of whom have an adverse credit history. |
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.
What is the definition of "total delinquencies"?
Total delinquencies are defined as arrears for one or more calendar months.
Is it loan count or "dollar"-weighted index?
The index is calculated as the current balance of loans in each arrear's 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 which have a limited number of transactions forming the index, larger transactions will drive the overall group.
What does table 3 represent in terms of total delinquencies change?
To lessen the natural limitations of a "dollar"-weighted index, this table shows the transaction count by absolute arrears change within a certain group. We categorize these changes in three buckets: "Total delinquencies down by more than two percentage points," "total delinquencies up by more than two percentage points," and "total delinquencies are stable (change between -2 percentage points and +2 percentage points)". This table only incorporates transactions that are included both in the current quarter and in the previous one.
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 collateral 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 county court judgments, 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?
We do not include them as a separate index as currently there are just a handful of transactions. Instead, they are based on the categorization of the transaction (prime, BTL, etc.).
Related Research
- European RMBS Outlook 2023: Permafrost Or Thaw?, Jan. 12, 2023
- European Housing Prices: A Sticky, Gradual Decline, Jan. 11, 2023
- Cost Of Living Crisis: Payment Shock Greatest In Legacy U.K. Nonconforming RMBS, Dec. 15, 2022
- Economic Outlook U.K. Q1 2023: A Moderate Yet Painful Recession, Nov. 29, 2022
- Economic Outlook Eurozone Q1 2023: Reality Check, Nov. 28, 2022
- Credit FAQ: Assessing The Impact Of Increasing Multifamily Exposure On U.K. Buy-To-Let RMBS Transactions, Nov. 24, 2022
- U.K. Buy-To-Let RMBS: Sheltered But Not Immune To Rate Rises, Nov. 24, 2022
- European RMBS Market Update Q4 2022: The New Normal For How Long?, Nov. 9, 2022
- European RMBS Index Report Q3 2022, Nov. 7, 2022
- European Auto ABS Index Report Q3 2022, Nov. 7, 2022
- European And U.K. Credit Card ABS Index Report Q3 2022, Nov. 7, 2022
- Basis Risk, Not Collateral Performance Affecting U.K. RMBS , Nov. 2, 2022
- Cost Of Living Crisis: How Bad Could It Get For Irish Reperforming RMBS?, Oct. 25, 2022
- Irish Nonbank Lenders May Capture More Of The Irish Mortgage Market, Oct. 25, 2022
- Cost Of Living Crisis: U.K. RMBS 2.0 Has Built-In Resilience, Sept. 6, 2022
- U.K. Nonconforming RMBS: Looking Beyond Headline Arrears, Aug. 25, 2022
This report does not constitute a rating action.
| Primary Credit Analyst: | Alastair Bigley, London + 44 20 7176 3245; Alastair.Bigley@spglobal.com |
| Secondary Contacts: | Feliciano P Pereira, CFA, Madrid + 44 20 7176 7021; feliciano.pereira@spglobal.com |
| Giovanna Perotti, Milan + 390272111209; Giovanna.Perotti@spglobal.com |
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