Morningstar DBRS cuts junior ratings on Durham Mortgages B Plc refinance notes

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Morningstar DBRS cuts Durham notes

Highlights

Morningstar DBRS downgrades Durham Mortgages B Plc Class F Notes to BB (low) (sf) and Class X Notes to CCC (sf) due to higher front-loaded defaults and portfolio losses as of April 30, 2026.
Arrears of over three months rise to 13.9% from 12.9% and cumulative default ratio increases to 4.4% from 2.0%, despite stronger credit enhancement for all note classes.
Class Z principal deficiency ledger grows to GBP 9.3 million from GBP 4.9 million and cumulative deferred interest on Class X reaches GBP 1.5 million, highlighting continued pressure on junior tranches.

Annual review highlights weaker junior note performance

As reported by Morningstar DBRS, the annual review of Durham Mortgages B Plc shows that Class F Notes are downgraded to BB (low) (sf) from BB (sf), while Class X Notes are downgraded to CCC (sf) from B (low) (sf). The agency confirms the Class A Notes at AAA (sf), Class B at AA (sf), Class C at A (sf), Class D at BBB (high) (sf), and Class E at BB (high) (sf).

The rating action is based on portfolio performance as of 30 April 2026, corresponding to the May 2026 payment date, as well as updated default, loss and credit enhancement assumptions on the remaining receivables. Morningstar DBRS says the Class F downgrade reflects higher than expected front-loaded defaults that are pressuring repayment of principal and interest on the junior tranche.

The Class X downgrade stems from continued debits of net losses to the Class Z Notes principal deficiency ledger, which occurred sooner than initially expected. Because the Class Z Notes PDL must be cured before Class X payments in the pre-enforcement waterfall, both interest and principal on Class X have remained unpaid since closing.

Portfolio losses rise despite stronger credit enhancement

The securitisation is backed by buy-to-let residential mortgages originated by Bradford & Bingley, Mortgage Express, GMAC, Kensington Mortgages Limited and Close Brothers Group plc, sold by Cornwall Home Loans Limited and serviced by Topaz Finance Limited. Morningstar DBRS says the pool retains adverse credit characteristics, with most loans originated before 2008 and concentrated among borrowers who struggled to refinance or prepay during the low-interest-rate period after the global financial crisis.

As of 30 April 2026, loans two to three months in arrears account for 1.0% of the outstanding portfolio balance, down from 1.5% a year earlier, while loans more than three months in arrears rise to 13.9% from 12.9%. The cumulative default ratio increases to 4.4% of the initial portfolio balance from 2.0%, and the cumulative net loss ratio rises to 1.9% from 1.0%.

Morningstar DBRS updates its base case assumptions at the B (sf) rating level to a probability of default of 24.3% and a loss given default of 19.2%. Even so, credit enhancement improves across Classes A to F by the May 2026 payment date, helped by sustained high prepayment levels, with support for Class A rising to 30.5% from 25.1% and for Class F to 6.1% from 5.2%.

The structure also retains liquidity support through a reserve fund set at about GBP 8.4 million and a general reserve fund at GBP 13.2 million, both at target levels in May 2026. However, the Class Z Notes PDL increases to GBP 9.3 million from GBP 4.9 million a year earlier, while cumulative deferred interest on Class X rises to GBP 1.5 million from GBP 0.7 million, underscoring the continued strain on the transaction's most junior liabilities.

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