Just Group looks to cut exposure to UK property with sale of mortgages portfolio

Just Group looks to cut exposure to UK property with sale of mortgages portfolio

 

The new business figure was up 23 per cent on £223.7m in H1 2020. The growth reflected higher retirement income sales, with £27m of origination “on behalf of a third party”, for which Just earns origination and administration fees, but holds no economic exposure.

The group said it would reduce the proportion of new business backed by lifetime mortgages to 20 per cent over time.

This came as its new business margin was impacted by tightening credit spreads, particularly on lifetime mortgages, arising from a rise in risk-free interest rates.

Just said it would continue focusing on pricing discipline and risk selection and, through distribution, target specific sub-segments of the market, such as shorter-duration loans to older borrowers, and borrowers with enough income to service interest.

 

Property price volatility

The disposal of seven per cent of its in-force portfolio formed part of a strategy to reduce balance sheet exposure to UK property, following regulatory changes in 2018.

The interim statement noted that a drop in residential property values could reduce amounts received from lifetime mortgage redemptions. As well, regulatory capital needed to support the possible shortfall would rise if values fell.

On the other hand, if prices grow significantly, this could increase the number of early redemptions, resulting in higher cashflows and consequential reinvestment risk.

Just already sold a portfolio of loans secured by residential mortgages, with a fair value of £600.8m, in December 2020.

The upcoming sale was likely to result in a “circa £125m net of tax loss”, the company said.

Just did not pay an interim dividend, saying it was “lead to a degree of caution” by possible effects on the economy of the upcoming withdrawal of government pandemic stimulus packages.

Caution was adopted even though the company made significant progress building its capital base to accommodate regulation on equity release mortgages, and continued growing underlying organic capital generation, in H1. 

The group held £7.9bn of investments in lifetime mortgages as of 30 June, down from £8.3bn at the start of the year.

The average loan-to-value ratio of the mortgage portfolio was 35.9 per cent.