UK MORTGAGES LIMITED

(a closed-ended investment company incorporated in Guernsey with registration number 60440 )

LEI 549300388LT7VTHCIT59

Final Net Asset Value

UKML RNS: Commentary accompanying UK Mortgages Limited June 2019 NAV

The UKML NAV per share was calculated for June 2019 month end at 82.06 pence per share, an increase of 1.43 pence.

As highlighted a number of times previously during 2019, the flattening of the yield curve throughout the year has contributed significantly to the decrease in the Fund’s NAV, as the fair values of the swaps held as hedges against the underlying portfolios declined, and whilst the economic effectiveness of the hedges remains fully intact, volatility in the NAV has occurred where the Fund is exposed to the portion deemed to be ineffective under IFRS 9 accounting standards.

Under current accounting policy, the effectiveness portion is re-calculated each half year. In particular, given the significant fall in swap rates this half year (the 5yr swap rate for example fell by around 40bps during that time), the calculation for the Fund’s largest hedge (against the Malt Hill No.2 investment) has now been calculated to be far more effective than when previously calculated in December 2018 and so much of the fair value decline has been reversed contributing to a large proportion of the increase in the June 2019 NAV.

The Fund’s board and the portfolio managers are currently working to develop a more efficient methodology for determining the effectiveness of the hedges going forward, in order to reduce the potential volatility arising from such valuations.

Other contributions to the NAV performance during the month are the income from the fund’s investments along with the pull-to-par effect from the Oat Hill No.1 transaction, plus a relatively small one-off release of previously reserved securitisation costs from the recent Barley Hill No.1 transaction.

The fund’s investments continue to perform exceptionally well, in line with expectations and more details will be available in the next factsheet.

Enquiries:
Northern Trust International Fund Administration Services (Guernsey) Limited
Andrew Bonham 44 (0)1481 745302

Date: 22 August 2019