News Column

Government-owned 'bad bank' UKAR issues mortgage arrears warning

June 4, 2014

Sean Farrell,

More than 20,000 mortgage customers at the government's "bad bank" could be pushed into arrears if interest rates rise by a percentage point, its chief executive said on Tuesday.

A rise of that scale would more than double the number of UK Asset Resolution's customers in arrears from under 16,000 two months ago.

Richard Banks, who heads UKAR, said: "Our view, from customer research we have done and our modelling, is that if interest rates went up to 1.5% about 22,000 more customers might go into arrears. Because this is a fragile book there are customers who will go into arrears when interest rates start to rise."

He added that UKAR was increasing efforts to support borrowers who could get into trouble when interest rates rise from their record low of 0.5%. Financial markets expect the Bank of England to start increasing borrowing costs gradually early next year.

UKAR manages the mortgage books of Northern Rock and Bradford & Bingley, which were nationalised during the financial crisis. The bank's arrears levels are already higher than average because of risky loans made before the crisis, including Northern Rock's notorious "Together" mortgages which let customers borrow more than the value of their property.

Banks said the impact of rate rises would probably be less damaging if, as expected, the Bank of England increases rates slowly, giving borrowers time to manage their finances.

UKAR's number of customers in arrears fell 39% to 15,483 in the 15 months to the end of March. Banks said the fall was because of the work his staff were doing to help customers maintain their payments, as well as the economic recovery.

UKAR repaid 5.1bn of loans to the government in the 15 months to March, taking total repayments to 10.4bn and leaving 38.3bn left to return to the taxpayer. Banks said he expected the full amount to be repaid within 10 years.

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Source: Guardian Web

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