Treasury sells £4.9 billion of ‘bad’ bank loans

The Treasury has announced the sale of another £4.9 billion of mortgages and unsecured loans from two of Britain’s ‘bad’ banks to the global investment bank Citi.

But the move has been criticised as making ‘a mockery’ of attempts to help mortgage prisoners to switch from expensive standard variable rate (SVR) mortgage deals they are trapped in.

Competitive auction

The sale followed what the Treasury described as ‘a competitive auction’ with two portfolios of loans and mortgages from Northern Rock and Bradford & Bingley being sold to Citi in the latest move to recover taxpayers’ money used to nationalise Northern Rock at the height of the 2008 financial crisis.

Chancellor Philip Hammond said: “Through our careful oversight of the country’s finances we are continuing to recover significant amounts of money that were loaned during the financial crash.

Sale

“Today’s sale enables us to recover the full amount taxpayers loaned to Northern Rock and Bradford & Bingley, helping us pay down our debts and strengthen our finances for the future.

“A key element in selecting the successful bidder was the treatment of customers. All bidders were required to agree to a non-negotiable package of customer protections before their bid was considered.”

UKAR

The loans have been looked after by UK Asset Resolution (UKAR), the government quango set up to try to recover as much as possible of the cash used to save the lenders from going broke a decade ago.

UKAR originally held £116 billion in loans and mortgages – a figure which has been slowly reduced as the government sold off different parcels of loans to major investors following a series of auction process.

Mortgage prisoners

A Treasury statement said borrowers will be protected and see no changes to the terms and conditions of their mortgages.

But some experts are claiming the sale has done nothing to help tens of thousands of mortgage prisoners who are trapped in expensive SVR loan agreements set up before the financial crisis broke.

Andrew Mortlake of Coreco said: “We have just seen a paper from the FCA detailing how we need to come together and act to reduce the number of mortgage prisoners.

Key issue

“The key issue being the fact that many of these are housed with inactive or unregulated lenders who cannot offer better terms for these borrowers.

“It therefore seems non-sensical to further exacerbate this issue by continuing to sell loan-books to these type of institutions.

In one move, the government seems to have made a mockery of their determination to help and will leave many scratching their heads.”

Better deals

Industry expert Ray Boulger added: “The best bids for these mortgages will have come from lenders that are not going to have to give borrowers better deals.

“Clearly a lender that is likely to keep those borrowers on Northern Rock’s old SVR is going to be prepared to bid more for the loan book than a lender that is going to be forced under the new rules to offer those borrowers product transfers.

“This is where there’s a big conflict of interest for the government. If the government is going to get the best deal for the taxpayer it has to sell the book to someone who is not going to be the best buyer for the mortgage borrowers.”