OREANDA-NEWS. Fitch Ratings has assigned Holmes 2016-1's notes expected ratings, as follows:

Series 2016-1 Class A1 notes: 'F1+(EXP)sf';
Series 2016-1 Class A2 notes: 'AAA(EXP)sf'; Outlook Stable

The assignment of the final ratings is contingent on the receipt of final documents conforming to information already received.

The transaction is a securitisation of prime residential owner-occupied mortgage loans originated in the UK by Santander UK plc (Santander).

KEY RATING DRIVERS
Portfolio Characteristics
The portfolio has a weighted average (WA) seasoning of 112 months and original LTV (OLTV) of 66.8%. The proportion of interest-only loans in the portfolio has increased to 63.3% from 55.5% at the last issuance in May 2013. While the OLTV is in line with other similar transactions, the level of interest-only loans is fairly high, which has been accounted for in the default probabilities assigned.

Short Term (2a7) Note
The class A1 notes will be issued with interim scheduled amortisation payments in October 2016 and January 2017, followed by a final payment on maturity in April 2017. In its cash flow analysis, Fitch tested various low prepayment scenarios to ensure that sufficient principal collections are likely. Payment of the notes is supported by a cash accumulation ledger, which diverts principal receipts in the periods preceding a maturity date. In addition, the reserve fund can be used to support the payment of these notes when due.

High Geographical Concentration
Within the portfolio the properties 33.2% by loan count are located in the South East. This is over 2x the population concentration for the region. The agency has applied a 15% upward adjustment to the foreclosure frequencies (FF) of these loans.

Issuance from Existing Assets
The notes issued will be funded by an increase in the funding share and a decrease in the seller's share. Following the issuance, the seller's share is expected to increase to around 42% from 26.6% as of the February 2016 investor report, compared with a minimum seller's share of 11.02%.

RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels greater than Fitch's base case expectations, which in turn may result in negative rating actions on the notes. Fitch's analysis revealed that a 30% increase in the weighted average foreclosure frequency along with a 30% decrease in the weighted average recovery rate would not result in any downgrade of the class A notes below 'AAA(EXP)sf'.

More detailed model implied ratings sensitivity can be found in the presale report which will be available at www.fitchratings.com.

DUE DILIGENCE USAGE
Fitch was provided with due diligence information from Deloitte LLP. The due diligence focused on compliance, credit, valuation, the presence of key documents in the loan file and data integrity. The review was conducted on a sample of 458 mortgages. Fitch considered this information in its analysis and the findings did not have an adverse impact on the agency's analysis.

Form 15E has been received from Deloitte LLP in regards to the work performed for this transaction.

DATA ADEQUACY
Santander provided Fitch with a loan-by-loan data template with all of the key data fields completed; however, a few fields were missing or partially completed, including:

Employment type
For 12% of the loans (by current balance) they are flagged with an employment type other than 'employed' or 'self-employed'; of these, 9.3% was flagged as 'certified income' and the remaining 2.6% as non-verified income. We have assumed that 25% of these loans flagged as 'self-employed' and have applied a pro-rata 20% upward adjustment to the foreclosure frequencies of such loans.

Number of County Court Judgments (CCJs)
Four per cent of the pool did not have any CCJ data. Previously when CCJ data was missing we would assume that the distribution of the loans for the missing data was the same as for the rest of the pool. Given that for the rest of the pool only 2.6% of the borrowers had some form of CCJ, the agency has not made any further adjustments.

The collateral review of the mortgage portfolio also involves reviewing loan-by-loan loss severity information on the originator's sold repossessions, during which the agency determines the originator's experienced loss severity rate and quick sale adjustment (QSA) discount. Fitch received updated loan-by-loan repossession data, and the QSA calculated was approximately 19.2%, which is slightly higher than Fitch's criteria. Fitch used the observed QSA when determining the recovery rate for the assets in the pool.

It is Fitch's opinion that the data available for the analysis is of sufficient quality.

Overall and together with the assumptions referred to above, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION
The information below was used in the analysis.
-Loan-by-loan data provided by Santander as at 31 January 2016
-Loan enforcement details provided by Santander as at December 2015
-Quarterly arrears performance data as at end-December 2015