Curzon Mortgages No.2 finalises RMBS credit ratings for UK mortgage-backed notes

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Curzon Mortgages RMBS ratings

Highlights

Morningstar DBRS finalises credit ratings for Curzon Mortgages No.2 RMBS, with Class A at AAA (sf) and classes down to B (sf) for Class X.
The GBP 533 million initial mortgage pool features 58.5% flexible loans and 54.8% interest-only, with heightened arrears and refinancing risk identified.
Around 19.7% of loans are three or more months in arrears, 28% of interest-only loans mature within five years, and 2% are already matured and in technical default.

Rating outcome and transaction structure

As reported by Morningstar DBRS, the agency finalises provisional credit ratings on the residential mortgage-backed notes issued by Curzon Mortgages No.2 PLC, assigning AAA (sf) to Class A, AA (low) (sf) to Class B, A (low) (sf) to Class C, BBB (low) (sf) to Class D, BB (low) (sf) to Class E, B (high) (sf) to Classes F and G, and B (sf) to Class X.

Morningstar DBRS does not rate the Class Z or Class R notes, or the Class X1, Class X2, and Class Y certificates issued in the transaction. The issuer is a bankruptcy-remote special-purpose vehicle incorporated in England and Wales, and the securitisation is backed by owner-occupied mortgage loans originated by Landmark Mortgages Limited, formerly Northern Rock plc and Northern Rock Asset Management plc.

Topaz Finance Limited acts as servicer. On the closing date, Curzon Mortgages PLC sold the portfolio to Isle of Wight Home Loans Limited, a special-purpose vehicle fully owned by Barclays Bank PLC, and the seller then transferred the portfolio to the issuer.

Portfolio risks and UK structured finance implications

Morningstar DBRS says the structure carries more risk than a traditional RMBS transaction because the seller is neither the originator nor the servicer of the loan portfolio. The deal also involves more than one sale of the underlying portfolio through different special-purpose vehicles, leaving representations and warranties more limited than is typical.

The agency says it reviews legal opinions on the validity of the transfers across the different entities involved in Curzon 1 and the current transaction. Citibank N.A./London Branch serves as issuer account bank and HSBC Bank plc is appointed collection account bank, with both meeting the eligibility standards cited by Morningstar DBRS for structured finance transactions.

The initial mortgage pool totals GBP 533 million in first-lien owner-occupied loans secured on UK properties. More than half of the loans, 58.5% by balance, include a flexible feature, although Morningstar DBRS notes that affordability assessments in practice limit most borrowers' ability to redraw overpayments.

The portfolio also shows elevated arrears and refinancing risk. Around 19.7% of loans are three or more months in arrears, while 67.7% of the pool is currently clear of arrears, and the agency says longer arrears have also been increasing even as performance stabilises in the second half of 2025.

Interest-only loans, including part-and-part loans, account for 54.8% of the mortgage book, creating maturity risk if borrowers lack a repayment plan or cannot refinance. About 2% of those interest-only loans have already matured and are technically in default, while another 28% are due to mature within the next five years.

Our earlier analysis of seasoned UK interest-only mortgages explained how more legacy loans are reaching contractual maturity without repaying principal, creating past-term interest-only (PTIO) exposure in RMBS pools. We noted that a meaningful share of these past-maturity loans can keep making payments, which may extend deal timelines and heighten maturity and extension risk—making borrower repayment behavior at maturity a key factor in UK structured finance credit analysis.

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