The government’s £4.9bn sale of former Northern Rock loans to Citi bank will “exacerbate” the problem of mortgage prisoners and “make a mockery” of efforts to help this vulnerable group, according to Coreco’s Andrew Montlake.
The sale announced by the Chancellor Philip Hammond today comes exactly a week after the Financial Conduct Authority revealed plans to relax affordability rules in order to help those unable to switch away from the expensive mortgage deals they took out before the financial crisis.
The Treasury says it agreed the sale of two portfolios of NRAM mortgages and unsecured loans (originated by Northern Rock), after a “highly competitive auction”.
The government says the sale “marks a major milestone in the plan to recover taxpayers’ money and pay off the country’s debt, while also protecting the rights of customers with these mortgages”.
However John Charcol senior technical manager Ray Boulger argues the government should have been more upfront about the conflicts of interests it was facing in finding a buyer for the loans.
He says: “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 they are going to get the best deal for the taxpayer they have to sell it to someone who is not going to be the best buyer for the mortgage borrowers.”
Boulger adds that while Citi bank is active in the UK mortgage market, it is not a mainstream lender and is focused on wealthier borrowers in the private banking sector.
He says that Citi therefore is unlikely to want to offer competitive new deals to the mortgage prisoners within the loan book it has purchased.
Coreco director Andrew Montlake says: “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.
“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.”
Chancellor Philip Hammond says: “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.
“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.”
The Treasury says all bidders were required to agree to a “non-negotiable package of customer protections” before their offer was considered.
It insists that customers will therefore see no changes to the terms and conditions of their mortgages.
The proceeds from this sale will be used to fully repay the loans provided by the Treasury to NRAM and Bradford & Bingley plc (B&B) during the financial crisis and reduce public debt.
The Treasury says the sale brings the government closer to the final disposal of NRAM and B&B, as announced at Autumn Budget 2018.
Following the sale, UKAR will own around £8bn worth of assets, down from around £14bn in September 2018 and from £116bn in 2010.