The Chancellor of Exchequer has recently authorized the sale of an £860 million equity release mortgage portfolio, retrieved by managed asset recovery services, and previously owned by Bradford & Bingley and NRAM Limited.
These mortgages were acquired by the taxpaying during the financial crisis, and their sale helps streamline the records of both B&B and NRAM, making the final wind-down of these two companies closer for the companies by the government. It’s also a major milestone in the government’s plan to recover taxpayer money, ten years after their initial loss.
There won’t be any changes made to the terms and conditions of the sold mortgages, and the borrowers themselves don’t need to do anything.
UK Asset Resolution (UKAR), the holding company for B&B and NRAM, will also terminate the interest rate swaps for the mortgages, which will remove the risks of their interest rates going up. The swaps were taken out by Northern Rock and B&B over a decade ago, when the loans were first issued, as part of good risk management practice. Due to the drop in long-term interest rates, there is quite a notable cost for terminating the swaps which is expected to be higher the profit on the sale on them, which would lead to an overall loss on the two transactions.
The managed asset recovery services will be selling them price over the book value, with the proceeds to go to the government in order to cut down on the national debt. Given the unwinding of the swaps, though, this reduction will probably go down by lower than the sales proceeds. These figures will be subjected to adjustment mechanisms and will be made clear when the transaction is finished, and, subsequently, disclosed to Parliament.
The Chancellor, Philip Hammond, they are still working to recover the money the taxpayer committed during the UK’s financial crash, and the sale of these loans is a step forward. The proceeds of the sell will then go towards to cutting down on the country’s national debt.
The UKAR expects to pay back about £1b of the government’s debt, which will be made up of several components, on top of the actual sales proceeds. Following repayment, UKAR will have repaid 94% of its government loans.