UK Mortgages Ltd Investment Update

 
TIDMUKML 
 
14 April 2016 
 
                             UK MORTGAGES LIMITED 
 
(a closed-ended investment company incorporated in Guernsey with registration 
number 60440) (a non-cellular company limited by shares incorporated in the 
Island of Guernsey under the Companies (Guernsey) Law 2008, as amended, with 
registered number 60440 and registered as a Registered Closed-ended Collective 
Investment Scheme with the Guernsey Financial Services Commission) 
 
Investment Update 
 
The Board of UK Mortgages Limited (the "Company") and TwentyFour Asset 
Management LLP (TwentyFour) are pleased to present an update on progress with 
further investments. 
 
The portfolio management team remain fully engaged on a number of prospective 
opportunities with the aim of fully investing the Company's capital in as 
timely a manner as possible. As stated previously, transactions are generally 
subject to non-disclosure agreements, as full disclosure before final closing 
would lead to a loss of competitive advantage. However, we have endeavoured to 
provide as much detail as possible on deal progression. 
 
1 - The Mortgage Lender (TML) 
 
Since the last update the Company has signed a conditional asset purchase 
agreement with TML and the expected timeframe for closing the transaction in 
April remains on track, with TML to begin originating immediately after 
closing. TwentyFour continues to progress the ancillary requirements of such a 
transaction and is negotiating with warehouse funding, hedging and other 
service providers in order to ensure all elements are in place when the 
transaction closes. As previously stated, whilst it is difficult to predict 
accurately, origination volume from TML in the first year is expected to be 
approximately GBP250 million. Furthermore, origination beyond that is expected to 
be higher, as TML and their products become established in the market. The 
future flow nature of this transaction will be particularly beneficial to the 
Company as it should provide a natural growth engine, and because the yield on 
this product would be higher than that on the first portfolio of BTL mortgages 
acquired from Coventry Building Society in November 2015, it is expected to 
generate an incrementally positive contribution to the Company's dividend in 
future years. 
 
2 - Vintage pools 
 
In our previous update, we referred to a vintage pool transaction which was in 
the early stages of discussion. This transaction has not proved to be viable, 
however two further vintage pool transactions are now under discussion. Both of 
these pools were originated prior to the global financial crisis, are different 
in nature and from different originators. Neither sale is driven by asset 
performance, which is strong in both cases. Both pools are more than large 
enough to enable a public senior securitisation subsequent to initial purchase. 
 
3 - Buy to Let 
 
As per the previous update TwentyFour continues to be in discussions with a 
mainstream mortgage lender regarding a portfolio of newly originated BTL loans, 
although timing expectations on this are now likely to fall into Q3 2016. 
 
4 - New Opportunities 
 
TwentyFour is still engaged in discussions with an ongoing originator of a 
broad range of mortgage products.  Whilst these remain at a relatively early 
stage, we have received the pool data and credit and cashflow analysis is 
underway in order to establish viability and to enable base-level economic 
discussions to commence, which should occur in the coming days. 
 
Furthermore TwentyFour is currently at an introductory stage of a potentially 
promising project with the originator of a BTL portfolio. Non-Disclosure 
Agreements are expected to be in place in the coming days which would then 
allow loan analysis to commence, and dialogue to become more detailed. 
 
5 - Transaction Sizes and Use of Capital 
 
All of the opportunities mentioned above are of suitable enough size that 
should any one, and certainly two, prove viable then when added to the 
estimated first year's origination volume from TML and the already completed 
BTL transaction, the Company's capital would be broadly fully invested and able 
to generate a yield comfortably within the target return range. 
 
It should be noted that these opportunities are complex transactions to 
negotiate with many moving parts, and whilst they are in the pipeline because 
the deals fit the Company's risk profile, there is no guarantee that these 
deals will complete. The detailed work carried out on these transactions and 
the decision to withdraw from unviable transactions is a reflection of our 
focus on product suitability for this vehicle and the high quality of our due 
diligence process. 
 
6 - Term Funding 
 
Whilst it is not possible to comment on market timing, we continue work on the 
various documentation and structural requirements in order to be able to 
complete the term funding, via a securitisation, of the BTL pool purchased from 
Coventry Building Society last year, in order that when market conditions are 
opportune the securitisation can be launched in a timely manner. 
 
 7 - Target Return* 
 
The Company has today declared a first interim dividend of 1.5p per share in 
respect of the period to 31 March 2016, which is payable on 29 April 2016. This 
dividend has substantially been funded from the capital reserves, as the 
Company's net income has been limited at this stage of the deployment 
programme. The Board remains confident that with the transaction pipeline that 
TwentyFour is currently working on, as outlined above, the Company is 
progressing to a position where dividends will be fully funded out of net 
income and capital may be replenished from returns made in excess of the 
dividend target. 
 
For further information, please contact: 
 
Numis Securities Limited: 
Nathan Brown             +44 (0)20 7260 1000 
Hugh Jonathan 
 
TwentyFour Income Fund Limited: 
John Magrath              +44 (0)20 7015 8900 
Alistair Wilson 
 
* Estimates of the Company's potential total return are based on certain 
scenarios and other assumptions. All references herein to potential future 
returns or distributions are targets or estimates and there can be no guarantee 
or assurance that they will be achieved. 
 
 
 
END
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