In what is being hailed as the largest ever financial asset sale by any European government body, the UK treasury has agreed the sale of £13 billion of ex-Northern Rock mortgage debts to US private equity firm, Cerberus Capital Management.
£3.3 billion of the total debt will be bought from Cerberus by TSB, in a move that will boost the size of their mortgage books by some 34,000 customers. TSB will be pleased with this after a previous attempt to increase the size of their balance sheets by purchasing 631 branches of Co-operative Bank fell through back in 2013.
JP Morgan and CarVal, who teamed up to buy £2.7 billion worth of debt originally owned by Slate from UKAR in 2014, have also expressed interest in buying some of the ex-Northern Rock stock, as have Goldman Sachs.
Mortgage debts from around 125,000 customers, with average values of £100,000 will be sold on, following Northern Rock ‘s nationalisation in 2008 and final collapse and purchase by Virgin Money in 2012.
Much of the debt comes from Northern Rock ‘s ill-fated ëTogether ‘ mortgage product ñ a product that allowed customers to use unsecured loans to top up their mortgages to the tune of 125% of the value of the property the mortgage was secured against.
The assets had been being held by ëzombie bank ‘ UK Asset Resolution (UKAR), which was set up in 2010 to handle funds previously held by both Northern Rock and Bradford & Bingley, both of whom were nationalised following the 2007-08 financial crisis.
UKAR ‘s chief executive Richard Banks has said that the customers whose mortgages had been sold on need not worry as nothing should change on their end, beyond receipt of “a goodbye letter from Northern Rock Asset Management and a hello letter from Cerberus or TSB”.
Ian Hares, the finance director at UKAR maintained that almost all of the customers (96%) affected were up to date with repayments and that the mortgages sold had an average LTV of just over 75%.
George Osborne has championed the move as one that marks “another major milestone in clearing up the mess left by the financial crisis.” He was keen to point out that the sale turned a profit of around £280 million for the government. The move comes as another step on the same path paved by the record breaking privatisation of RBS, which involved selling a 5.7% stake in the bank at a loss of over £1 billion.
However, the move has not been without its critics. Brian Cole, regional officer for the Unite union, said that “it ‘s alarming to see the mortgages of so many homeowners being sold-off to an equity firm whose only interest is short-term profit. Our members and the thousands of homeowners who rely on us deserve long-term security, yet once again their futures are being placed on the roulette wheel. Unite will continue to consult our members at UKAR and seek assurances from Cerberus over both the long-term future of staff and the mortgage book.”