OREANDA-NEWS. Fitch Ratings has affirmed Aire Valley Mortgages plc, a master trust programme of residential owner-occupied and buy-to-let (BTL) mortgage loans originated by Mortgage Express, a wholly owned subsidiary of Bradford & Bingley. Bradford & Bingley is now part of UK Asset Resolution Limited (UKAR). A full list of rating actions is available at the end of this rating action commentary.

KEY RATING DRIVERS

Stable Asset Performance
Performance indicators have remained broadly unchanged over the past year. The portion of loans in arrears by more than three months has stabilised at just below 0.8% of the outstanding collateral balance, down from the 5.5% peak in mid-2009. The current stock of properties in possession is low at around 0.15% of the current portfolio balance. As a result Fitch expects limited change in enforcement activities in the near future.

BOE BBR Stress Modelled
In line with its criteria, Fitch has applied a haircut to the margins of the loans linked to BBR to stress the excess spread available in the transaction. Close to 100% of the pool is made up of such loans and after factoring this into its analysis, Fitch concluded that the rated notes continue to have sufficient credit enhancement (CE) to affirm the ratings.

Interest Only (IO) Loans Concentration
The transaction has a material concentration of IO loan maturity dates. IO loans that are scheduled to mature in 2030 to 2032 represent 34% of the total pool. As per its criteria, Fitch carried out a sensitivity analysis assuming a 50% default probability for these loans. No rating action was deemed necessary as a result of the IO loan concentration.

Pass-Through Pay-Down Structure
Following a step-up trigger breach in 2008, the purchase of new loans by the structure was no longer permitted. As a result, in 2012 a second trigger was breached when the trust size fell below the GBP10.7bn threshold. Ultimately this resulted in all notes being converted to pass-through notes, regardless of their maturities, which has contributed to a steady build-up in CE.

Counterparty Exposure
The Royal Bank of Scotland Group plc (BBB+/F2), currency swap provider on Aire Valley Mortgages 2007-1 and Deutsche Bank AG (A-/F1), currency swap provider on Aire Valley Mortgages 2006-1, were downgraded below the rating threshold to support 'AAAsf' note ratings set out in Fitch's counterparty criteria. Fitch understands from UKAR that both banks have been posting collateral to support their obligations although the amounts posted are not in line with Fitch's criteria. In its analysis, the agency has considered an estimated loss based on the difference between current collateral postings and collateral postings required under Fitch's current criteria. The analysis showed that the structure has sufficient CE to affirm the notes' ratings.

RATING SENSITIVITIES
UK BTL Tax Changes
The UK government recently announced the removal of higher-rate tax relief on mortgage interest repayments. Over three years from 2017, tax relief of up to 45% on mortgage interest costs will be removed and be restricted to the basic 20% rate of income tax for all landlords. Furthermore from April 2016, landlords will face a 3% surcharge on each stamp duty band. As at end-January 2016, around 80% of the pool comprised BTL loans, potentially impacting future performance.

Counterparty Exposure
If the mark-to-market values of the currency swaps subject to collateral postings move substantially against the issuer, such that potential losses from a default of the counterparty exceed the available CE, Fitch may downgrade the notes.

DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.

DATA ADEQUACY
Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. There were no findings that were material to this analysis. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring.

Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable.

Overall, Fitch's assessment of the 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 UKAR as at 30 November 2015
-Transaction reporting provided by UKAR as at 22 February 2016
-Loan enforcement details provided by UKAR as at 22 February 2016
-Collateral posting details provided by UKAR as at 4 March 2016

MODELS
The models below were used in the analysis. Click on the link for a description of the model.

ResiEMEA.

EMEA RMBS Surveillance Model.

Fitch has affirmed the following ratings:
Aire Valley Mortgages 2004-1 Plc
Series 3 Class A1 (ISIN XS0201883328): affirmed at 'AAAsf'; Outlook Stable
Series 3 Class A2 (ISIN XS0201883674): affirmed at 'AAAsf'; Outlook Stable
Series 3 Class B1 (ISIN XS0201883914): affirmed at 'AAsf'; off Rating Watch Positive (RWP); Outlook Stable
Series 3 Class B2 (ISIN XS0201884300): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 3 Class C1 (ISIN XS0201884649): affirmed at 'BBBsf'; off RWP; Outlook Stable
Series 3 Class C2 (ISIN XS0201885026): affirmed at 'BBBsf'; off RWP; Outlook Stable
Series 3 Class D1 (ISIN XS0201885455): affirmed at 'BBsf'; off RWP; Outlook Stable
Series 3 Class D2 (ISIN XS0202219258): affirmed at 'BBsf'; off RWP; Outlook Stable

Aire Valley Mortgages 2005-1 Plc
Series 2 Class A1 (ISIN XS0217567766): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A2 (ISIN XS0217568061): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A3 (ISIN XS0217568145): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class B1 (ISIN XS0217568491): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 2 Class B2 (ISIN XS0217568814): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 2 Class C2 (ISIN XS0217569119): affirmed at 'BBBsf'; off RWP; Outlook Stable

Aire Valley Mortgages 2006-1 plc
Series 1 Class A (ISIN XS0264186585): affirmed at 'AAAsf'; Outlook Stable
Series 1 Class B1 (ISIN XS0264187393): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 1 Class B2 (ISIN XS0264191742): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 1 Class B3 (ISIN XS0264194258): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 1 Class C2 (ISIN XS0264192716): affirmed at 'BBBsf'; off RWP; Outlook Stable
Series 2 Class A1 (ISIN XS0264192989): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A2 (ISIN XS0264197517): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A3 (ISIN XS0264197780): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class B2 (ISIN XS0264193284): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 2 Class B3 (ISIN XS0264197863): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 2 Class C2 (ISIN XS0264193797): affirmed at 'BBBsf'; off RWP; Outlook Stable

Aire Valley Mortgages 2007-1 plc
Series 1 Class B (ISIN XS0298410126): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 1 Class C (ISIN XS0298410555): affirmed at 'BBBsf'; off RWP; Outlook Stable
Series 2 Class A1 (ISIN US00935LAC72): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A2 (ISIN XS0298412841): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A3 (ISIN XS0298413229): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class B (ISIN XS0298413658): affirmed at 'AAsf'; off RWP; Outlook Stable
Series 2 Class C (ISIN XS0298415273): affirmed at 'BBBsf'; off RWP; Outlook Stable
Series 2 Class A1 Currency Swap Obligation (ISIN XS0298411017): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A2 Currency Swap Obligation (ISIN XS0298412841): affirmed at 'AAAsf'; Outlook Stable

Aire Valley Mortgages 2007-2 plc
Class 1A1 (ISIN XS0329886526): affirmed at 'AAAsf'; Outlook Stable
Class 1A2 (ISIN XS0329904956): affirmed at 'AAAsf'; Outlook Stable
Class 1B (ISIN XS0329906225): affirmed at 'AAsf'; off RWP; Outlook Stable
Class 1C (ISIN XS0329907116): affirmed at 'BBBsf'; off RWP; Outlook Stable

Aire Valley Mortgages 2008-1 plc
Series 1 Class A1 (ISIN XS0378258833): affirmed at 'AAAsf'; Outlook Stable
Series 1 Class A2 (ISIN XS0378263163): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A1 (ISIN XS0378266000): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class A2 (ISIN XS0378268717): affirmed at 'AAAsf'; Outlook Stable
Series 2 Class C (ISIN XS0378269871): affirmed at 'BBBsf'; off RWP; Outlook Stable
Series 2 Class D (ISIN XS0378270887): affirmed at 'BBsf'; off RWP; Outlook Stable