OREANDA-NEWS. Fitch Ratings has affirmed Holmes Master Issuer plc, a master trust programme of residential mortgage loans originated by Santander UK plc (A/Positive/F1). A full list of rating actions is at the end of this rating action commentary.

KEY RATING DRIVERS
Repurchase of Loans Maintains Performance
Santander continues to repurchase loans on a monthly basis. This includes loans that are in arrears by two or more months. On average over the past year, this has kept the balance of two months plus arrears at around 0.9% of the outstanding pool balance, compared with the Fitch UK Master Trust Index of 1.7% over the same period.

Increasing Credit Enhancement (CE)
There has been a significant build-up of CE, rising to 42.5% and 40.4% for the class A and B notes, respectively, as at November 2015. Over the past year, CE has increased by 11.4 and 10.7 percentage points for the class A and B notes, respectively. The reserve fund currently stands at GBP465m and will be increased by GBP50m if loans in arrears by over three months exceed 2% of the portfolio. The available CE is sufficient to withstand Fitch's stresses resulting in the affirmation.

Standard Variable Rate (SVR) Risks Modelled
The SVR element of the swap is calculated with respect to a basket of SVR mortgage rates charged by a number of leading UK mortgage lenders to their existing customers, rather than Santander's SVR. Consequently, there is hedging risk between the basket SVR and Santander's variable rate. Fitch has factored this into its analysis and concluded that the rated notes have sufficient CE to affirm the ratings. As at November 2015, SVR loans made up around 52% of the pool.

Commingling Risk
There are two triggers in place to mitigate exposure to the mortgage trustee guaranteed interest contract account bank. A stand-by account provider will be engaged if Santander is downgraded to 'A-', with funds redirected to this standby account if Santander is downgraded to 'BBB+' or lower. Fitch recognises this feature is not strictly in line with its counterparty criteria, but even if the agency assumes the loss of one month of collections in its analysis, the high CE is more than adequate to support the ratings.

RATING SENSITIVITIES
Although there has been a build-up in CE for the rated notes since the last issuance, it could decrease if new notes are issued. With the seller share currently above the required amount, Santander has flexibility to adjust the future capital structure, which could reduce CE. Nevertheless, the current CE makes the ratings very resilient to even extreme stresses.

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 pool 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.

Prior to the transactions closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information, which indicated no adverse findings material to the rating analysis.

Prior to the transactions closing, Fitch conducted a review of a small targeted sample of Santander UK plc origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

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 Santander UK plc as at 31 December 2015
- Transaction reporting provided by Santander UK plc as at 30 November 2015
- Loan enforcement details provided by Santander UK plc as at 30 November 2015

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

ResiEMEA.

EMEA RMBS Surveillance Model.

REPRESENTATIONS AND WARRANTIES
A comparison of the transaction's Representations, Warranties & Enforcement Mechanisms to those typical for the asset class is available by accessing the appendix that accompanies the initial new issue report (see Holmes Master Issuer plc - Issue 2012-1 - Appendix, dated 20 March 2012, Holmes Master Issuer PLC - Issue 2012-2 - Appendix, dated 12 April 2012, Holmes Master Issuer PLC - Issue 2012-3 - Appendix, dated 21 August 2012 and Holmes Master Issuer PLC - Issue 2013-1 - Appendix, dated 30 May 2013 at www.fitchratings.com). In addition refer to the special report "Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions" dated 12 June 2015 available on the Fitch website.

Fitch has affirmed the following ratings:

Holmes Master Issuer plc - Series 2010-1
Class A5 (ISIN XS0557835351): affirmed at 'AAAsf'; Outlook Stable

Holmes Master Issuer plc - Issue 2011-1
Class A4 (ISIN XS0590150792): affirmed at 'AAAsf'; Outlook Stable
Class A5 (ISIN XS0590150875): affirmed at 'AAAsf'; Outlook Stable

Holmes Master Issuer plc - Issue 2011-3
Class A4 (ISIN XS0679914944): affirmed at 'AAAsf'; Outlook Stable
Class A5 (ISIN XS0679915081): affirmed at 'AAAsf'; Outlook Stable
Class A6 (ISIN XS0679915164): affirmed at 'AAAsf'; Outlook Stable

Holmes Master Issuer plc - Issue 2012-1
Class A6 (ISIN XS0736399139): affirmed at 'AAAsf'; Outlook Stable

Holmes Master Issuer plc - Issue 2012-2
Class A (ISIN XS0773322606): affirmed at 'AAAsf'; Outlook Stable

Holmes Master Issuer plc - Series 2012-3
Class A1 (ISIN XS0790113632): affirmed at 'AAAsf'; Outlook Stable
Class B1 (ISIN US43641NBU72): affirmed at 'AAsf'; Outlook Stable
Class B2 (ISIN XS0790188139): affirmed at 'AAsf'; Outlook Stable

Holmes Master Issuer plc - Issue 2013-1
Class A2 (ISIN XS0938012704): affirmed at 'AAAsf'; Outlook Stable
Class A3 (ISIN XS0938091575): affirmed at 'AAAsf'; Outlook Stable