harbour no.1 plc

Presale:

Harbour No.1 PLCDecember 3, 2021

Preliminary Ratings

ClassPrelim.Rating*

Classsize

(%)§

Initial creditenhancement

(%)† Interest Step-up marginStep-update

Legal finalmaturity

A1 AAA (sf) 52.00 49.25 Compounded dailySONIA plus amargin

Compounded dailySONIA plus amargin

October2024

January2054

A2-Dfrd AA- (sf) 14.75 34.50 Compounded dailySONIA plus amargin


October2024

January2054

B-Dfrd A (sf) 7.00 27.50 Compounded dailySONIA plus amargin


October2024

January2054

C-Dfrd A- (sf) 3.00 24.50 Compounded dailySONIA plus amargin


October2024

January2054

D-Dfrd BBB- (sf) 6.25 18.25 Compounded dailySONIA plus amargin


October2024

January2054

E-Dfrd BB (sf) 4.50 13.75 Compounded dailySONIA plus amargin


October2024

January2054

F-Dfrd B- (sf) 3.50 10.25 Compounded dailySONIA plus amargin


October2024

January2054

G-Dfrd CCC- (sf) 3.00 7.25 Compounded dailySONIA plus amargin


October2024

January2054

Z NR 6.00 0.00 N/A N/A October2024

January2054

R NR 1.58 N/A N/A N/A October2024

January2054

X NR 1.50 N/A Compounded dailySONIA plus amargin


October2024

January2054

X certificate NR N/A N/A N/A N/A N/A January2054

Presale:

Harbour No.1 PLCDecember 3, 2021

PRIMARY CREDIT ANALYST

Matteo Matusali

London

+44 (0)20 7176 0631

[email protected]

SECONDARY CONTACT

Arnaud Checconi

London

+ 44 20 7176 3410

[email protected]

www.spglobal.com December 3, 2021 1

© S&P Global Ratings. All rights reserved. No reprint or dissemination without S&P Global Ratings' permission. See Terms of Use/Disclaimeron the last page.

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mailto: [email protected]




Preliminary Ratings (cont.)

ClassPrelim.Rating*

Classsize

(%)§

Initial creditenhancement

(%)† Interest Step-up marginStep-update

Legal finalmaturity

Y certificate NR N/A N/A N/A N/A N/A January2054

Note: This presale report is based on information as of Dec. 3, 2021. The ratings shown are preliminary. Subsequent information may result inthe assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed asevidence of final ratings. This report does not constitute a recommendation to buy, hold, or sell securities. *Our preliminary ratings addresstimely receipt of interest and ultimate repayment of principal for the class A1 notes, and the ultimate payment of interest and principal on theother rated notes. †This is the credit enhancement based on subordination plus the general reserve fund, expressed as a percentage ofcollateral amount including loans with past maturities. N/A--Not applicable. NR--Not rated. SONIA--Sterling Overnight Index Average.

Transaction Summary

- Harbour No.1 PLC is a static RMBS transaction that securitizes a portfolio of £503.9 millionowner-occupied and buy-to-let (BTL) mortgage loans secured on properties in the U.K. fromthree different subpools, namely MORAG, WALL, and MAQ, across 18 originators.

- At closing, the issuer will purchase the beneficial interest in the portfolio of U.K. residentialmortgages from the seller (Isle of Wight Home Loans Ltd.), using the proceeds from theissuance of the notes and certificates. The issuer will grant security over all its assets in favorof the security trustee.

- The pool is well seasoned. Almost all the loans are first-lien (99.9%) U.K. owner-occupied andBTL residential mortgage loans, with a minimal amount of second-lien (0.1%). The borrowers inthis pool may have previously been subject to a county court judgement (CCJ; or the Scottishequivalent), an individual voluntary arrangement, or a bankruptcy order prior to the origination,and may be self-employed, have self-certified their incomes, or were otherwise considered bybanks and building societies to be nonconforming borrowers. The loans are secured onproperties in England, Wales, Scotland, and Northern Ireland and were mostly originatedbetween 2002 and 2008.

- Of the preliminary pool, 36% is in arrears, with 25.6% of that portion in severe arrears (90+arrears). Of the pool, 33.6% is considered reperforming. However, the average payment rate onmost of the late arrears loans has been consistently above 70% over time. There is highexposure to interest-only and part and part loans in the pool at 80.5%.

- A general reserve fund provides credit support, and principal can be used to pay senior fees andinterest on the notes subject to various conditions. A further liquidity reserve fund will befunded to provide liquidity support to the classes A1 and A2-Dfrd notes.

- Topaz Finance Ltd., Pepper (UK) Ltd., and Mars Capital Finance Ltd. are the servicers in thistransaction.

- There are no rating constraints in the transaction under our counterparty, operational risk, orstructured finance sovereign risk criteria. We consider the issuer to be bankruptcy remote.

- Our credit and cash flow analysis and related assumptions consider the transaction's ability towithstand the potential repercussions of the COVID-19 outbreak, namely, higher defaults andlonger recovery timing. Considering these factors, we believe that the available creditenhancement is commensurate with the preliminary ratings assigned. As the situation evolves,we will update our assumptions and estimates accordingly.



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Presale: Harbour No.1 PLC

The Credit Story

Strengths Concerns and mitigating factors

The pool is well-seasoned, with a weighted-averageseasoning of over 14 years (includingperforming/reperforming and loans in arrears). Inour view, more-seasoned performing loans exhibitlower risk profiles than less-seasoned loans.

We received a 99/1 pool audit report for this transaction and there area larger than expected number of errors and missing files in the audit.Most of this is because different originators were consolidated in oneentity throughout the years and documents could have been lost ordatabases not synchronized correctly. We consider the loans' highseasoning as one of the mitigants to the potential lack of reliability ofinformation provided and risk of non-enforceability as the loans havebeen outstanding for more than 10 years. However, we have appliedadjustments to our weighted-average foreclosure frequency (WAFF)assumption given the errors in the report.

Our base-case scenario accounts for positiveexcess spread (about 50 bps) providing creditenhancement in this transaction.

Of the preliminary pool, 36.0% comprises loans in arrears, including25.6% in over 90 days' delinquency. That said, the majority of 90+days arrears loans consistently have a payment rate above70%.Arrears have reduced over time, despite a deceleration in thistrend since 2019. 39.1% of borrowers were current in 2015 versus63.8% in 2021. We appreciate that 2020 and 2021 have been markedby the pandemic, which has created difficulties managing andservicing such a portfolio.

The application of principal proceeds is fullysequential. Credit enhancement can therefore buildup over time for the rated notes, enabling thecapital structure to withstand performance shocks

The portfolio comprises a significant portion of loans that receivedifferent kinds of performance arrangements and are nowreperforming (33.6%). We have applied adjustments to our WAFFassumption to account for this credit characteristic.Of the totalperforming portfolio, approximately 6.9% of loans have had previousarrears capitalization and have subsequently cured their arrearsbalance. We have therefore increased our WAFF estimates to addressthis risk.

The transaction features a nonamortizing generalreserve, which will be fully funded at closing and willprovide credit enhancement and liquidity for thecollateralized notes to meet revenue shortfalls. Thetransaction can also use principal receipts to paysenior fees and interest on the notes (subject tovarious conditions). The transaction also featuresan amortizing liquidity reserve fund to provideliquidity to the class A1 and A2-Dfrd notes, and topay senior fees and X certificates.

We have only received limited historical loss severity information. Inaddition, there were concerns about the reported original valuations.We received further information on updated valuations showing thatthe latter are in line with our indexed valuations. Despite this, we havealso increased our WALS estimates to address this risk.

Any losses on the portfolio and any use of principalas available revenue receipts would result in theissuer recording an amount in the principaldeficiency ledger (PDL). This will provide additionalprotection to the notes, as excess spread can beused to pay down the notes.

Of the preliminary portfolio, some borrowers have previously beensubject to a CCJ (6.4%), an individual voluntary arrangement, or abankruptcy order (0.8%) prior to the origination, or may beself-employed (50.3%), have self-certified their incomes (28.8%), orwere otherwise considered by banks and building societies to benonconforming borrowers. We consider that loans with thesecharacteristics are more likely to exhibit a higher historical defaultprobability than otherwise-similar loans. We have therefore increasedour WAFF estimates to address this risk.Other negative creditcharacteristics--such as borrowers with a high loan-to-income (with57.3% of borrowers with a multiple above 3.25x), or a high proportionof cash out loans (50%), or BTL loans without available rentalinformation (6.3%), or commercial properties (2.2%)--have also beenaccounted for and reflected in our WAFF estimates.



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The Credit Story (cont.)

Strengths Concerns and mitigating factors

The portfolio comprises three sub-pools that willeach be serviced by well-established U.K. servicerswith fully integrated systems and policies andspecialized in the management of similar assets.Inaddition, one of the subpools comprises Thrones2015 collateral, which we previously rated and wasunder surveillance for several years.

80.5% of the pool comprises interest-only (IO) and part and part loansmaturing between 2021 and 2047. A large percentage of the pool isset to reach its maturity in 2032 (about 28%) and will be reflectedaccordingly in our cash flow model.The servicers in the pool contactborrowers with IO products annually to ensure that repaymentstrategies are viable by maturity. Once maturity is reached, if the loanis still outstanding, the servicers proactively contact the client morefrequently and, if actions are not taken, either repossession orrestructuring is undertaken depending on the borrower's situation.

Of the preliminary portfolio, 3.0% of the loans have either passed theirmaturity or are currently under a repossession/foreclosure process.We have therefore increased our WAFF estimates to address this risk.

As the beneficial title seller is a special-purpose entity, it has limitedresources to meet its financial obligations and is not the originator ofthe mortgages. The seller will have a buy-back obligation or the optionto indemnify the issuer in respect of the ineligible receivables, withresources provided via a liquidity facility set up with the transaction'srisk retention holder. However, the facility has a sunset provision oftwo years and can cover up to a maximum amount of £12.6 million. Weconsider the seller's responsibility for breaching the package to beweaker than what we normally see in U.K. RMBS transactions. Wehave therefore increased our WAFF estimates to address this risk.

There will be no swap to hedge the mismatch between the interestrate paid under certain loans (bank base rate) and the interest ratepaid under the notes (daily SONIA). We have therefore stressed forbasis risk in our analysis. To cover the risk of reduction in standardvariable rate we have applied a haircut in our analysis.In addition,there is some uncertainty surrounding the transition from LIBOR onthe asset side to its replacement rate, as the proposal may introducebasis risk with the notes and lower excess spread. Each servicer hasdetailed its LIBOR transition strategy in the relevant legaldocumentation, which was then modelled accordingly.

A backlog in the courts followed a ban on repossessions that expiredat the end of May 2021. We have tested the sensitivity of an extendedrecovery timing assumption by six months combined with a lowprepayment rate (based on historical CPR rate) in our analysis and thepreliminary ratings remain robust.

The fee structure is complex with a multitude of fees (includingstandard servicing fees, arrears servicing fees, and redemption fees)and a different fees structure across subpools. We have stressed thefees accordingly in our cash flow assumptions.

Originators

The pool comprises three subpools, as outlined in the table below.



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Table 1

Preliminary Pool Composition

MORAG(Subpool 1) WALL (Subpool 2) MAQ (Subpool 3)

Originator AmberHomeloans Ltd.,North YorkshireMortgages Ltd.

Amber Homeloans Ltd., FutureMortgages Ltd., GE Money HF Ltd.,GE Money HL Ltd., GE Money SLLtd., GE Money SM Ltd., GEMHLL,IGroup 2 Ltd., Rooftop MortgagesLtd., Southern Pacific Mortgage Ltd.

Amber Homeloans Ltd., Associates CapitalCorporation PLC, Edeus Mortgage Creators Ltd.,Future Mortgages Ltd., Heritable Bank PLC, MarsCapital Finance Ltd. (trading as MagellanHomeloans), Mortgages PLC, Rooftop MortgagesLtd., Southern Pacific Mortgage Ltd., VictoriaMortgage Funding Ltd., Wave Lending Ltd.

Percentageof pool (%)

27 33 40

Environmental, Social, And Governance (ESG)

Our analysis considers a transaction's potential exposure to ESG credit factors. For RMBS, weview the exposure to environmental credit factors as average, social credit factors as aboveaverage, and governance credit factors as below average (see "ESG Industry Report Card:Residential Mortgage-Backed Securities," published March 31, 2021).

In our view, the exposure to social credit factors is in line with the sector benchmark. Social creditfactors are generally considered above average because housing is viewed as one of the mostbasic human needs, and conduct risk presents a direct social exposure for lenders and servicers,particularly as regulators are increasingly focused on ensuring fair treatment of borrowers. ForRMBS, social risk is generally factored into our base-case assumptions.

We consider the exposure to environmental credit factors is in line with the sector benchmark.Physical climate risks could severely damage properties and reduce their value, affectingrecoveries if borrowers default. We believe that well-diversified portfolios reduce exposure toextreme weather events.

In our view, the exposure to governance credit factors is in line with the sector benchmark. Thereare very tight restrictions on what activities the special-purpose entity can undertake comparedwith other entities. Given that this transaction securitizes a static pool with no reinvestment orprefunding features and the fact that the originators are not the sellers, the risk of looseningunderwriting standards or potential adverse selection is remote. That said, it is worth mentioningthat the audit was of a weak standard, with several errors and missing files. This was factored intoour overall credit assessment.

Servicing

There are three servicers: Topaz Finance Ltd. (MORAG subpool), Mars Capital Finance Ltd. (WALLsubpool), and Pepper U.K. Ltd. (MAQ subpool).

The sale process differs depending on the seller. For the WALL and MAQ subpools, the vendor willsell assets to the seller and then to the issuer on the closing date. (This follows the sale of theassets from the original seller to the intermediate seller and then on to the vendor). For theMORAG pool, there is no intermediate seller. The three servicers will continue to service the pool'sloans.



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Topaz Finance Ltd.

CMS is an Australian global finance company, which has permission from the Financial ConductAuthority (FCA) to administer regulated mortgage contracts in the U.K. via its Computershare LoanServicing (CLS) division. Topaz Finance Ltd. is a fully-owned subsidiary of CLS. CLS is the U.K.'sleading third-party mortgage administrator, servicing prime, nonconforming, BTL, flexible, andlifetime/reverse mortgages. The servicer ranking is 'above average' ("Servicer Evaluation:Computershare Loan Services (HML)", published on Feb 3, 2020).

Mars Capital

Founded in 2008, Mars Capital is a specialized servicer which acquires and services mortgageportfolios of banks and investors such as Pimco, NatWest, Shawbrook Bank, BNP Paribas, andOaktree. In 2017, the company was purchased by Arrow Global, a large European asset manager inthe nonperforming mortgage space.

Pepper Money (UK)

Pepper Money was incorporated in Australia in August 2000 as a limited-liability company. InNovember 2017, Pepper Money delisted from the ASX and accepted a takeover bid from anaffiliate of global investment firm KKR. Following the takeover, the Pepper group was about 57%owned by the KKR affiliate, with previous shareholders owning the remainder. In March 2021, thePepper group completed a corporate restructure, which separated the Pepper business inAustralia and New Zealand from the rest of the world. In May 2021, Pepper Money listed on theASX. Pepper (UK) operates in the U.K. The servicer ranking is 'strong' ("Servicer Evaluation: PepperMoney Ltd.", published on Sep 15, 2021).

We reviewed the three servicers' processes and are satisfied that they can perform their functionsin the transaction. The three companies have an experienced leadership team with goodexperience in the financial services industry, and we view their compliance and risk managementstructure as robust. We are comfortable that there are adequate staff levels and supportiveinformation technology systems to continue to effectively service the loans in the pool.

Collateral

We have received loan-level data as of September 2021. We have also received historicalperformance data (since 2015) for the loans in pool.



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Table 2

Collateral Key Features*

Harbour No.1 PLC Thrones 2015-1 PLC

Towd PointMortgageFunding 2019- Vantage2PLC

Pool cut-off date Sept. 30, 2021 June 30, 2015 Oct. 31, 2019

Jurisdiction U.K. U.K. U.K.

Originator Amber Homeloans Ltd., Future MortgagesLtd., GE Money HF Ltd., GE Money HL Ltd.,GE Money SL Ltd., GE Money SM Ltd., GEMoney HL Ltd., IGroup2 Ltd., RooftopMortgages Ltd., Southern Pacific MortgageLtd., North Yorkshire Mortgages Ltd.,Associates Capital Corporation PLC, EdeusMortgage Creators Ltd., Heritable Bank PLC,Mars Capital Finance Ltd. (trading asMagellan Homeloans), Mortgages PLC,Rooftop Mortgages Ltd., Victoria MortgageFunding Ltd., Wave Lending Ltd.

Edeus Mortgage Creators Ltd.,Victoria Mortgage Funding Ltd.,Heritable Bank PLC, Mortgages PLCand Mortgages 1 Ltd., Wave LendingLtd., Amber Homeloans Ltd.,Associates Capital Corporation PLC(now CitiFinancial Europe PLC,Citibank Trust Ltd., Future MortgagesLtd., Rooftop Mortgages Ltd.,Southern Pacific Mortgage Ltd., MarsCapital Finance Ltd. (trading asMagellan Homeloans)

GE MoneyHomeLending Ltd.,First NationalBank PLC,Igroup Ltd

Principal outstandingof the preliminarypool (mln. £)

503.9 297.7 631.6

Number of properties 4,104 2,276 6,029

Average loan balance(£)

122,066 126,933 104,241

Weighted-averageindexed current LTVratio (%)

62.0 79.3 62.5

Weighted-averageoriginal LTV ratio (%)

84.5 84.9 81.2

Weighted-averageseasoning (months)

176 97.3 157

Top regionalconcentration (bybalance)

London and the South East: 38.9% London and the South East: 39.3% London andthe SouthEast: 32.5%

Buy-to-let (%) 6.3 12.3 1.8

More than one CCJ(%)

6.4 20.8 21.1

Self-certified loans(%)

28.8 39.3 37.4

Interest only and partand part (%)

80.5 75.3 75.2

Current arrearsgreater than or equalto one month (%)

36.0 42.2 35.3

*Calculations are according to S&P Global Ratings' methodology. LTV--Loan-to-value.



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Asset description

The portfolio comprises first-lien U.K. owner-occupied loans (93.6%), a minimal amount ofsecond-lien (0.1%), and BTL mortgage loans (6.3%) and, and has a weighted-average currentindexed LTV ratio of 62.0% (before applying any haircut) and a weighted-average original LTV of84.5%. The preliminary pool is well seasoned with a weighted-average seasoning of 14.7 years(see chart 2) and the assets are primarily concentrated in London and the South-East (38.9%), butno regions breach our concentration limits.

The preliminary pool also contains loans that have had at least one CCJ (6.4%), and borrowers thathave previously been declared bankrupt (0.8%) prior to the origination, as well as self-certified(28.8%) and self-employed borrowers (50.3%).

The small proportion of BTL mortgages (6.3%) did not report any rental information and there isalso a small proportion of commercial properties (2.3%).

Chart 1 Chart 2



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Chart 3

The preliminary pool contains a high proportion (80.5%) of IO and part and part loans. When thematurity of a loan is reached, but it is yet to be redeemed, in some cases, the servicer does notautomatically classify a loan as default, but where possible, allows for short term extensions inorder for the borrower to refinance or sell without the need for litigation.



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Chart 4

Asset performance

As part of our analysis, we have considered previous performance data for each loan in the pool.

Chart 5 shows historical arrears for the overall pool. Post-acquisition (pools were onboarded in2015 (MAQ), 2017 (MORAG), and 2011-2015 (WALL)), the combination of servicing policies, abenign economic environment, and low interest rates contributed to a reduction in arrears until2019, when its pace decelerated. It was followed by a reversion of the trend due to the onset of thepandemic, which brought a double-whammy of economic stress affecting vulnerable borrowersand a ban on repossessions, causing the 90d+ arrears bucket to increase. Arrears in the portfolioexceed our pre-2014 U.K. nonconforming index.



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Chart 5

The provisional pool has 36.0% of loans in arrears as calculated in accordance with ourmethodology and 25.6% in severe arrears. These negative credit characteristics are partiallyoffset by the high payment rate recorded by these loans. Most loans in severe arrears have apayment rate above 70%. More than a third of these loans have a payment rate exceeding 100%,although we did not give credit to this aspect in our analysis.

33.6% of loans are considered reperforming. These are loans which are current, and had in thepast three years a type of reperforming arrangements (e.g. ATP).

Credit Analysis And Assumptions

We have applied our global residential loans criteria to the provisional pool in order to derive theWAFF and the weighted-average loss severity (WALS) at each rating level.

The WAFF and the WALS assumptions increase at each rating level because notes assigned ahigher rating should be able to withstand a higher level of mortgage defaults and loss severity. Webase our credit analysis on the loans, the properties, and the associated borrowers'characteristics.



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Table 3

Portfolio WAFF And WALS

Rating level WAFF (%) WALS (%)Credit coverage

(%)Base foreclosure frequency component for an archetypal

U.K. mortgage loan pool (%)

AAA 81.39 47.71 38.83 12.00

AA 71.97 41.04 29.54 8.10

A 64.74 29.60 19.17 6.10

BBB 55.56 22.88 12.71 4.20

BB 43.58 18.29 7.97 2.20

B 40.54 14.47 5.87 1.75

WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity.

Chart 6

Macroeconomic And Sector Outlook

Our most recent published expectations are for GDP in the U.K. to expand by 6.9% in 2021 beforeanother strong period of economic growth in 2022 (see "Economic Outlook Europe Q4 2021: A



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Faster-Than-Expected Liftoff," published on Sept. 23, 2021, and "European Housing MarketInflation Is Here To Stay," published on Nov. 2, 2021).

S&P Global Ratings believes the new Omicron variant is a stark reminder that the COVID-19pandemic is far from over. Although already declared a variant of concern by the World HealthOrganization, uncertainty still surrounds its transmissibility, severity, and the effectiveness ofexisting vaccines against it. Early evidence points toward faster transmissibility, which has ledmany countries to close their borders with Southern Africa or reimpose international travelrestrictions. Over coming weeks, we expect additional evidence and testing will show the extent ofthe danger it poses to enable us to make a more informed assessment of the risks to credit.Meanwhile, we can expect a precautionary stance in markets, as well as governments to put intoplace short-term containment measures. Nevertheless, we believe this shows that, once again,more coordinated, and decisive efforts are needed to vaccinate the world's population to preventthe emergence of new, more dangerous variants.

Table 4

U.K. Housing Market Statistics

2019 2020 2021f 2022f 2023f

Nominal house price, % change y/y 0.5 6.4 5.0 0.0 1.5

Real GDP, % change 1.4 (9.8) 6.9 5.2 1.8

Unemployment rate 3.8 4.5 4.9 4.7 4.5

Sources: S&P Global Ratings, Eurostat, Organisation for Economic Cooperation and Development, Department for Communities and LocalGovernment, Office for National Statistics. Y/Y--Year on year. f--Forecast.

Based on our macroeconomic forecasts, we revised the 'B' foreclosure frequency assumptions inour global residential loans criteria for the U.K. archetypal pool to 1.75% from 1.50% on May 1,2020 (see "Residential Mortgage Market Outlooks Updated For 13 European JurisdictionsFollowing Revised Economic Forecasts," published on May 1, 2020).

We have also considered the transaction's ability to withstand higher defaults.

Transaction Summary



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Chart 7

At closing, the issuer purchased the beneficial interest in the portfolio of U.K. residentialmortgages from the seller (Isle of Wight Home Loans Ltd.), using the proceeds from the issuance ofthe notes and certificates.

The issuer is an English special-purpose entity, which we consider to be bankruptcy remote. Weanalyzed its corporate structure in line with our legal criteria.

Interest will be paid quarterly on the interest payment dates, beginning in January 2022. The ratednotes pay interest equal to compounded daily SONIA plus a class-specific margin, with a furtherstep-up margin following the optional call date in October 2024. All of the notes will reach legalfinal maturity in January 2054.



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Class X and Y certificates

The class X certificates represent senior deferred consideration payable by the issuer to the sellerpari passu with the class A1 notes' interest. The class X certificates' payments will amount to0.09% per year of the portfolio's current collateral balance. However, in periods of distress wherean interest shortfall may materialize, the class X certificates' payments can be deferred andultimately payable at maturity, without accruing any interest.

Given that the payments due on the class X certificates rank pari passu with the class A1 notes'interest, they are addressed in our cash flow model.

The class Y certificates are entitled to receive any excess amount resulting after payments havebeen made for all the items in the pre-enforcement revenue waterfall.

Deferral of interest

Under the transaction documents, interest payments on all classes of rated notes (excluding theclass A1 notes) can be deferred. Consequently, any deferral of interest on the class A2-Dfrd,B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd, F-Dfrd, and G-Dfrd notes would not constitute an event of default.Deferred interest will accrue interest and will become due and payable on the legal final maturitydate.

Our preliminary ratings address the timely payment of interest and the ultimate payment ofprincipal on the class A1 notes and the ultimate payment of interest and principal on the otherrated notes.

General reserve fund and liquidity reserve fund

A reserve fund will be funded at closing. It will comprise two elements:

- The non-amortizing general reserve fund, which will be funded at closing to 1.25% of the overallpool balance. It can be used to pay off senior expenses, cure the PDL for the rated notes, andcover interest shortfalls (subject to various conditions).

- The liquidity reserve fund will be funded at closing. Its required amount will be the greater ofeither 0.5% of the class A1 and A2 notes' closing balance or 1.0% of the class A1 and A2 notes'outstanding balance. However, if the liquidity reserve fund event is triggered--the generalreserve fund is lower than 1.0% of the portfolio's closing balance--the required amount will be1.0% of the class A1 and A2 notes' outstanding balance. The liquidity reserve fund will beavailable to cover shortfalls on the senior expenses and interest payments on the class A1 andA2-Dfrd notes and X certificates.

Principal to pay interest

In high-delinquency scenarios, there may be liquidity stresses, whereby the issuer would not havesufficient revenue receipts to pay interest due on senior fees, or on rated notes. To mitigate thisrisk the issuer can use any existing principal receipts to pay for any interest shortfall on the ratednotes, subject to various conditions. The use of principal to pay interest would result in theregistering of a PDL and may reduce the credit enhancement available to the notes.



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Conditions for the application of the general reserve fund and principal to payinterest amounts

The general reserve fund amounts will be available to cover interest for the class A1 and A2-Dfrdnotes without any condition.

The use of the general reserve fund to pay interest on the class B-Dfrd to G-Dfrd notes is subjectto the PDL condition (i.e., the PDL registered for each class of notes should be less or equal to 10%of the notes' outstanding balance), but will always be available if the class of notes is the mostsenior outstanding.

The use of principal receipts to pay for interest shortfalls on the class A2-Dfrd and B-Dfrd notes isalso subject to the PDL condition, but will always be available in case the class of notes is themost senior outstanding. Principal receipts will be available to cover the class A1 notes' interestpayments without any condition.

Principal receipts can only be used to pay interest on the class C-Dfrd to G-Dfrd notes if the classis the most senior outstanding.

The use of principal receipts cannot be used to pay for the class X certificate payments.

Principal deficiency ledgers

The PDL will comprise nine subledgers, one for each of the rated asset-backed classes of notesand class Z notes.

Amounts will be recorded on the PDL if the portfolio suffers any losses and if the transaction usesprincipal as available revenue receipts.

Revenue priority of payments

Table 5

Priority of Payments

Revenue priority of payments Principal priority of payments

Payment of senior fees and expenses and issuer profit Cover shortfalls in senior fees and interest on classes A toG-Dfrd (subject to various conditions)

Payment of third-party expenses including indemnity claims tothe joint lead managers (up to £1,000,000)

Principal outstanding under class A1 until fully redeemed

Interest on class A1 notes and class X certificates Principal outstanding under class A2 until fully redeemed

PDL class A1 Principal outstanding under class B until fully redeemed

Interest on class A2 notes Principal outstanding under class C until fully redeemed

Replenishment of the liquidity reserve fund Principal outstanding under class D until fully redeemed

PDL on class A2 Principal outstanding under class E until fully redeemed

Interest on class B notes Principal outstanding under class F until fully redeemed

PDL on class B Principal outstanding under class G until fully redeemed

Interest on class C notes Mortgage Sale Agreement (MSA) warranty rebate due andunpaid to seller

PDL on class C Principal outstanding under class Z until fully redeemed



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Table 5

Priority of Payments (cont.)

Revenue priority of payments Principal priority of payments

Interest on class D notes Principal outstanding under class R until fully redeemed

PDL on class D Excess amounts to be applied as available revenue

Interest on class E notes

PDL on class E

Interest on class F notes

PDL on class F

Interest on class G notes

PDL on class G

Replenishment of the general reserve fund

Amounts (if any) due to the joint lead managers

Class Z PDL

Class X note interest

Class X note principal

Subordinated expenses (including sub servicing fee)

MSA warranty rebate due and unpaid to seller

Payments of class Y certificates

PDL--Principal deficiency ledger.MSA Warranty Rebate—this is the amount paid by the issuer under the priority of payments to compensate the seller for any MSA warrantypayment not previously compensated.

Cash Flow Assumptions And Analysis

We stress the transaction's cash flows to test the credit and liquidity support that the assets,subordinated tranches, and cash reserve provide.

We apply these stresses to the cash flows at all relevant rating levels. In our stresses on the classA1 notes, all notes must pay ultimate principal and full and timely interest. Our preliminary ratingson the class A2-Dfrd to G-Dfrd notes address the payment of ultimate principal and interest.

Our cash flow analysis indicates that the available credit enhancement for the class A1 to E-Dfrdis commensurate with the ratings currently assigned.

Our cash flow analysis indicates that the available credit enhancement for the class F-Dfrd iscommensurate with higher ratings than those currently assigned. However, the ratings on thesenotes also reflect a very low prepayment rate and their ability to withstand the potentialrepercussions of repossessions taking longer due to a court backlog. We have therefore assignedour preliminary 'B- (sf)' rating to this class of notes.

The class G-Dfrd notes did not pass any of the rating scenario stresses, including benign steadystate scenarios. However, because these notes are rated on an ultimate payment of principal andinterest, we believe default will not be virtually imminent, as the notes can continue to deferinterest until maturity. Under our CCC criteria, we think these notes will require significantlyfavorable economic conditions for repayment at maturity to occur. Therefore, we assigned a



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preliminary 'CCC- (sf)' rating.

Interest rate risk

Interest on the notes is equal to daily SONIA plus class-specific margins that step up following theoptional redemption date. The underlying collateral is linked to the Bank of England base rate(BBR), London Interbank Offered Rate (LIBOR), or to an SVR. There is basis risk for the underlyingcollateral that is linked to BBR and the transaction does not benefit from a swap to mitigate thisrisk. As a result, we stress the historical timing mismatch between the index paid on the assetsand that paid on the liabilities.

About 39.2% of the pool pays a mortgage interest rate referencing the LIBOR benchmark interestrate. Depending on the subpool, the LIBOR rate will either migrate upon its phasing out to dailySONIA (MAQ), synthetic LIBOR (MORAG) or BBR (WALL). Each servicer has detailed its LIBORtransition strategy in the relevant legal documentation, which was then modelled accordingly.

When modeling the yield on SVR loans (about 6%), we considered the servicer's SVR-setting policy(based on BBR or various factors depending on the subpool). We applied haircuts to SVR marginsunder our criteria by rating level.

Spread compression

The asset yield on the provisional pool can decrease if higher-paying assets default or prepay. Wehave taken this into account in our cash flow analysis by assuming at a 'AAA' level that theportfolio's weighted-average margin might compress by 0.85%.

Commingling risk

Borrowers pay into a collection accounts held with Barclays Bank PLC in the legal title holders'names. All amounts in the collection accounts are swept to the transaction account on the nextbusiness day.

If the legal title holders were to become insolvent, mortgage collection amounts in the collectionaccounts may become part of the legal titleholder's bankruptcy estate. In order to mitigate thisrisk, there is a declaration of trust is in place over the collection accounts. To address the risk ofthe collection account bank's insolvency, the transaction documents contain replacementlanguage in line with our counterparty criteria.

Although we believe that the above mechanisms (downgrade language and declaration of trust)mitigate against loss of collections, we have considered that collections could be delayed in theevent of an insolvency. In our analysis we have therefore applied a liquidity stress of one month ofcollections.

Fees

Contractually, the issuer is obliged to pay periodic fees to various parties providing services to thetransaction, such as servicers, trustees, and cash managers, among others. The fees structure iscomplex and differs across subpools, not only in terms of fee types but also in the way they arecalculated and because they feature some caps and RPI indexing. We have accounted for these inour analysis. In particular, we have applied a stressed servicing fee of 0.59% (the higher of 1.5xactual fees and 0.40% per year) to account for the potential increase in costs to attract a



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replacement servicer, and another two basis points for various fees (including legal title holderand redemption fees). Additionally, we modelled estimated yearly fixed fees of about £150,000.We have also included other one-off fees, such as the cost of replacing the bank account, whichtotal about £281,200.

Setoff risk

There are no employee loans or deposit setoff exposure in the transaction because the seller andlegal title holders are not deposit-taking institutions.

Risk arising from flexible loans, product switches, and porting

There are no flexible loans, which can overpay and then redraw the overpaid amount in the future.In our view, the risks related to set-off due to redraw is thus non-existent.

Servicers will not honor product switches requests. If such a request is made and agreed the selleris required to repurchase the relevant loan or indemnify the issuer.

A number of loans in the WALL pool are portable but subject to various conditions with regard toleverage.

Default timing and recoveries

We have used the WAFF and WALS derived under our credit analysis as inputs in our cash flowanalysis.

At each rating level, the WAFF specifies the total balance of the mortgage loans we assume todefault over the transaction's life. Defaults are applied on the outstanding balance of the assetsas of the closing date. We simulate defaults following two paths (i.e., one front-loaded and oneback-loaded) over a six-year period. During the recessionary period within each scenario, weassume 25% of the expected WAFF is applied annually for three years.

Table 6

Default Timings For Front-Loaded And Back-Loaded Default Curves

Year after closing Front-loaded defaults (% of WAFF per year) Back-loaded defaults (% of WAFF per year)

1 25.0 5.0

2 25.0 10.0

3 25.0 10.0

4 10.0 25.0

5 10.0 25.0

6 5.0 25.0

WAFF--Weighted-average foreclosure frequency.

We assume recoveries (1-WALS) on defaulted assets to be received 18 months after default forowner-occupied properties and 12 months after default for BTL properties. Foreclosure costs areestimated at 3% of the repossession value plus a fixed element of £5,000.

Our loss severities are based on loan principal and do not give any credit to the recovery of interest



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accrued on the loan during the foreclosure process.

Delinquencies

To simulate the effect of delinquencies on liquidity, we model a proportion of scheduledcollections equal to one-third of the WAFF (in addition to assumed foreclosures reflected in theWAFF) to be delayed. We apply this in each of the first 18 months of the recession, and we assumea full recovery of these delinquencies to occur 36 months after they arise.

Prepayments

To assess the impact on excess spread and the absolute level of defaults in a transaction wemodel both high and low prepayment scenarios at all rating levels.

Table 7

Prepayment Assumptions

High Low

Pre-recession 30.0 4.0

During recession 3.0 3.0

Post-recession 30.0 4.0

Interest rates

We modeled two interest rate scenarios in our analysis: up and down.

Summary

In combination, the default timings, recession timings, interest rates, and prepayment ratesdescribed above give rise to eight different scenarios at each rating level.

Table 8

RMBS Stress Scenarios

Total number of scenarios Prepayment rate Interest rate Default timing

8 High and low Up and down Front-loaded and back-loaded

Scenario Analysis

We analyzed the effect of a moderate stress on our WAFF assumptions and its ultimate effect onour preliminary ratings on the notes. We ran two stress scenarios to demonstrate the ratingtransition of a note, and the results are in line with our credit stability criteria.



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Sovereign Risk

Our long-term unsolicited credit rating on the U.K. is 'AA'. Therefore, our preliminary ratings in thistransaction are not constrained by our structured finance sovereign risk criteria.

Counterparty Risk

The issuer is exposed to Barclays Bank PLC Branch as the transaction account provider andservicers' collection account. The documented replacement mechanisms for the accountproviders adequately mitigate the transaction's exposure to counterparty risk in line with ourcounterparty criteria.

Table 9

Supporting Ratings

Institution/role Ratings Replacement trigger Collateral posting trigger

Barclays Bank PLC as collection account provider A/Positive/A-1 BBB/A-2 N/A

Barclays Bank PLC as transaction account provider A/Positive/A-1 A/A-1 N/A

Note: There are no counterparty constraints on the ratings on the notes in this transaction. The replacement language in thedocumentation is in line with our current counterparty criteria (see "Counterparty Risk Framework: Methodology And Assumptions,"published on March 8, 2019). For a full list of transaction participants, please refer to the appendix.

Surveillance Analysis

We will maintain surveillance on the transaction until the notes mature or are otherwise retired. Todo this, we will analyze regular servicer reports detailing the performance of the underlyingcollateral, monitor supporting ratings, and make regular contact with the servicer to ensure that itmaintains minimum servicing standards and that any material changes in the servicer'soperations are communicated and assessed.

Various factors could lead us to lower our ratings on the notes, such as increasing foreclosurerates in the underlying pool and changes in the pool composition. We have analyzed the effect ofincreased defaults by testing the sensitivity of the ratings to two different levels of movements.

Under our scenario analysis, the ratings on the notes in both scenarios would not suffer a ratingtransition outside of that considered under our credit stability criteria.

We also conducted additional sensitivity analysis to assess the impact on the rated notes of, allelse being equal, low prepayment rates, increased WAFF and WALS, an extended recovery periodand indemnity claims expenses, and the preliminary ratings assigned are able to withstand thesesensitivities. For this purpose, we ran eight scenarios by either increasing stressed defaultsand/or reducing expected recoveries as shown in the tables below.



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Table 10

Sensitivity Stresses

WALS

WAFF 1.0x 1.1x 1.3x

1.0x Base Case Sensitivity 3 Sensitivity 4

1.1x Sensitivity 1 Sensitivity 5 Sensitivity 7

1.3x Sensitivity 2 Sensitivity 6 Sensitivity 8

The results of the above sensitivity analysis indicate deterioration of the ratings on the notes (seetable 11).

Table 11

Sensitivity Analysis Results

ClassBasecase 1 2 3 4 5 6 7 8

A1 AAA AAA AA+ AAA AAA AA+ AA+ AA AA-

A2-Dfrd AA- AA- A AA- A A+ A A A-

B-Dfrd A A A- A A- A BBB+ A- BBB

C-Dfrd A- A- BBB+ A- BBB A- BBB BBB BBB-

D-Dfrd BBB- BBB- BBB- BBB- BB+ BBB- BB BB+ BB

E-Dfrd BB BB BB BB B+ BB B B+ B-

F-Dfrd B- B- B- B- B- B- B- B- B-

G-Dfrd CCC- CCC- orbelow

CCC- orbelow

CCC- orbelow

CCC- orbelow

CCC- orbelow

CCC- orbelow

CCC- orbelow

CCC- orbelow

Appendix

The full list of transaction parties (excluding those providing supporting ratings) are listed below.

Transaction participants

Role Participant

Issuer Harbour No.1. PLC

Holdings Harbour No.1 Holdings Ltd

Seller Isle of Wight Home Loans Ltd.

Sponsor and retention holder Barclays Bank PLC

Co-Arranger and joint lead manager Barclays Bank PLC

Co-Arranger and joint lead manager Citigroup Global Markets Ltd.

Joint lead manager Deutsche Bank AG, London Branch

Morag vendor Morag Finance I S.a.r.l.

Wall vendor and MAQ vendor Wall Finance No.1. PLC

Morag LTH Morag Loans Finance Ltd.



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Transaction participants (cont.)

Role Participant

Morag servicer Topaz Finance Ltd.

Wall servicer Mars Capital Finance Ltd.

MAQ servicer Pepper UK Ltd.

Wall LTH Mars Capital Finance Ltd.

MAQ LTH Pepper (UK) Limited

Cash manager US Bank Global Corporate Trust Ltd.

Replacement cash manager facilitator Intertrust Management Ltd.

Servicer facilitator Intertrust Management Ltd.

Servicer administrator Barclays Bank PLC

Security trustee US Bank Trustees Ltd.

Note trustee US Bank Trustees Ltd.

Principal paying agent and registrar Elavon Financial Services DAC, UK Branch

Corporate services provider Intertrust Management Ltd.

Share trustee Intertrust Management Ltd.

Related Criteria

- General Criteria: Environmental, Social, And Governance Principles In Credit Ratings, Oct. 10,2021

- Criteria | Structured Finance | General: Global Framework For Payment Structure And CashFlow Analysis Of Structured Finance Securities, Dec. 22, 2020

- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates InStructured Finance, Oct. 18, 2019

- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology AndAssumptions, March 8, 2019

- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating StructuredFinance Securities: Methodology And Assumptions, Jan. 30, 2019

- Criteria | Structured Finance | RMBS: Global Methodology And Assumptions: Assessing Pools OfResidential Loans, Jan. 25, 2019

- Legal Criteria: Structured Finance: Asset Isolation And Special-Purpose Entity Methodology,March 29, 2017

- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk InStructured Finance Transactions, Oct. 9, 2014

- General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012

- General Criteria: Global Investment Criteria For Temporary Investments In TransactionAccounts, May 31, 2012

- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011



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- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28,2009

Related Research

- European Housing Market Inflation Is Here To Stay, Nov. 2, 2021

- Economic Outlook Europe Q4 2021: A Faster-Than-Expected Liftoff, Sept. 23, 2021

- ESG Industry Report Card: Residential Mortgage-Backed Securities, March 31, 2021

- Residential Mortgage Market Outlooks Updated For 13 European Jurisdictions FollowingRevised Economic Forecasts, May 1, 2020

- 2017 EMEA RMBS Scenario And Sensitivity Analysis, July 6, 2017

- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top FiveMacroeconomic Factors, Dec. 16, 2016

- European Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The TopFive Macroeconomic Factors, Dec. 16, 2016



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