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More than 130,000 Northern Rock mortgages owned by zombie bank More than 130,000 Northern Rock mortgages owned by zombie bank
(about 5 hours later)
Around 130,000 customers of Northern Rock will find out in the coming months that the mortgage they have with the Newcastle-based lender, which was nationalised in 2008, is now owned by somebody else.Around 130,000 customers of Northern Rock will find out in the coming months that the mortgage they have with the Newcastle-based lender, which was nationalised in 2008, is now owned by somebody else.
The borrowers will receive notification from the zombie bank, which took over the parts of Northern Rock rescued by taxpayers, that their home loans have been sold off as part of an attempt to help repay a loan from the Treasury.The borrowers will receive notification from the zombie bank, which took over the parts of Northern Rock rescued by taxpayers, that their home loans have been sold off as part of an attempt to help repay a loan from the Treasury.
It will be the moment that those 131,000 customers realise their mortgages were used to fund Granite, a complex financing vehicle thatNorthern Rock used to raise £50bn on the financial markets – to fund its mortgage lending before the credit crunch. It will be the moment that those 131,000 customers realise their mortgages were used to fund Granite, a complex financing vehicle that Northern Rock used to raise £50bn on the financial markets – to fund its mortgage lending before the credit crunch.
At its peak, Granite was the biggest financing vehicle of its kind in Europe. Northern Rock sold mortgages to Granite, and Granite paid for them by selling bonds to investors. It should have been a virtuous circle but when investor appetite for those bonds evaporated, the bank had a very public funding crisis.At its peak, Granite was the biggest financing vehicle of its kind in Europe. Northern Rock sold mortgages to Granite, and Granite paid for them by selling bonds to investors. It should have been a virtuous circle but when investor appetite for those bonds evaporated, the bank had a very public funding crisis.
Customers queued to withdraw their cash: thefirst run on a bank in more than century. But what was once a huge problem is now a huge asset: George Osborne is hoping that by selling off Granite, it will help him bring down the nation’s net debt by £13bn and return more money to the taxpayer. Customers queued to withdraw their cash: the first run on a bank in more than century. But what was once a huge problem is now a huge asset: George Osborne is hoping that by selling off Granite, it will help him bring down the nation’s net debt by £13bn and return more money to the taxpayer.
It is understood that there are several would-be buyers for Granite: among them a consortium including Goldman Sachs and Blackstone and Royal Bank of Scotland, which like Northern Rock was rescued by taxpayers during the banking crisis.It is understood that there are several would-be buyers for Granite: among them a consortium including Goldman Sachs and Blackstone and Royal Bank of Scotland, which like Northern Rock was rescued by taxpayers during the banking crisis.
The bad bank, known as UK Asset Resolution, has already paid back 30% of the £49bn loans that were granted to keep Northern Rock (and Bradford & Bingley) afloat. Those repayments come from mortgage payments and remortgages, when customers move their loans elsewhere.The bad bank, known as UK Asset Resolution, has already paid back 30% of the £49bn loans that were granted to keep Northern Rock (and Bradford & Bingley) afloat. Those repayments come from mortgage payments and remortgages, when customers move their loans elsewhere.
UKAR – which currently has 389,000 mortgage and loan customers inherited from Northern Rock and B&B – announced on Tuesday that it had repaid another £3.7bn in its financial year, taking the total to more than £14bn, and was on course to repay another£5bn by selling off Granite. UKAR – which currently has 389,000 mortgage and loan customers inherited from Northern Rock and B&B – announced on Tuesday that it had repaid another £3.7bn in its financial year, taking the total to more than £14bn, and was on course to repay another £5bn by selling off Granite.
The sale is part of the UKAR restructuring that the chancellor signalled in his March budget. The mortgage processing arm is also up for sale, a move that will cut the UKAR workforce to 200, from 2,100.The sale is part of the UKAR restructuring that the chancellor signalled in his March budget. The mortgage processing arm is also up for sale, a move that will cut the UKAR workforce to 200, from 2,100.
Richard Banks, UKAR’s chief executive who was paid £653,277 last year, said: “These two programmes are our most ambitious initiatives to date and the work on these over the next twelve months will determine the next stage in our future”.Richard Banks, UKAR’s chief executive who was paid £653,277 last year, said: “These two programmes are our most ambitious initiatives to date and the work on these over the next twelve months will determine the next stage in our future”.
UKAR inherited other problems. In its latest update, it has set aside£295m for compensation for missold loans, including £33m to cover claims for payment protection insurance misselling. UKAR inherited other problems. In its latest update, it has set aside £295m for compensation for missold loans, including £33m to cover claims for payment protection insurance misselling.
Selling off mortgage books is not new. UKAR sold off a £2.7bn mortgage book last year and has also sold mortgages to Virgin Money, which bought the “good” part of Northern Rock. But Granite is more complex, UKAR said.Selling off mortgage books is not new. UKAR sold off a £2.7bn mortgage book last year and has also sold mortgages to Virgin Money, which bought the “good” part of Northern Rock. But Granite is more complex, UKAR said.
The vast majority (92%) of the loans buried inside Granite are variable-rate mortgages and Northern Rock’s infamous “Together” mortgages , which allowed customers to borrow 125% of the value of the home they intended to buy. The idea was that house prices would rise and the borrower would not be left with debts greater than the value of their house. Immediately after the financial crisis, as house prices went into reverse, the Together loans looked like a prime example of reckless lending, but house prices have since bounced back and only 2% of the borrowers are in negative equity. The vast majority (92%) of the loans buried inside Granite are variable-rate mortgages and Northern Rock’s infamous Together mortgages , which allowed customers to borrow 125% of the value of the home they intended to buy. The idea was that house prices would rise and the borrower would not be left with debts greater than the value of their house. Immediately after the financial crisis, as house prices went into reverse, the Together loans looked like a prime example of reckless lending, but house prices have since bounced back and only 2% of the borrowers are in negative equity.
That negative equity figure, however, masks the fact that the personal loans sold alongside mortgages to make up the Together product are not included. Around 50,000 personal loans – which last as long the home loans attached – are part of the Granite sale. Some £1bn of loans are in arrears.That negative equity figure, however, masks the fact that the personal loans sold alongside mortgages to make up the Together product are not included. Around 50,000 personal loans – which last as long the home loans attached – are part of the Granite sale. Some £1bn of loans are in arrears.
The attractions of buying bundles of mortgages may not be immediately obvious. But for a bank already in the home-loans business, adding in £13bn of extra mortgages would help improve the cost-income ratio – a closely watched measure of efficiency. For a private equity bidder, the book of loans could prove attractive because of the return on the bonds at a time when interest rates are stuck at historic lows of 0.5%. The margin on the loans is over 4%.The attractions of buying bundles of mortgages may not be immediately obvious. But for a bank already in the home-loans business, adding in £13bn of extra mortgages would help improve the cost-income ratio – a closely watched measure of efficiency. For a private equity bidder, the book of loans could prove attractive because of the return on the bonds at a time when interest rates are stuck at historic lows of 0.5%. The margin on the loans is over 4%.
While the sale process continues, Banks is focusing on customers whose family finances could be knocked off course by rising interest rates – which could come next year. A quarter-point rate rise will add £20 a month to average mortgage payments and, he said: “There are a number of customers who are quite fragile.”While the sale process continues, Banks is focusing on customers whose family finances could be knocked off course by rising interest rates – which could come next year. A quarter-point rate rise will add £20 a month to average mortgage payments and, he said: “There are a number of customers who are quite fragile.”
The sale of Granite comes as Osborne prepares to sell off other banks rescued during the crisis. An offer of shares in Lloyds Banking Group to small investors is being prepared and the first tranche of the government’s 79% stake in Royal Bank of Scotland readied for sale. For Northern Rock and Bradford & Bingley to repay their debts will likely take a lot longer. Their repayments come only as customers repay loans – and the longest mortgage in UKAR’s portfolio runs to 2049.The sale of Granite comes as Osborne prepares to sell off other banks rescued during the crisis. An offer of shares in Lloyds Banking Group to small investors is being prepared and the first tranche of the government’s 79% stake in Royal Bank of Scotland readied for sale. For Northern Rock and Bradford & Bingley to repay their debts will likely take a lot longer. Their repayments come only as customers repay loans – and the longest mortgage in UKAR’s portfolio runs to 2049.