The Government is to sell off £13bn of the mortgages and loans it took on after rescuing Bradford & Bingley and Northern Rock at the height of the financial crisis and will use the cash to pay down the national debt.
The deal will be the biggest sale to date of the so called “toxic assets” that brought the banks down.
The sale will leave the two banks owing the Government £36.7bn after the taxpayer forked out £48.7bn to prevent the banks from going bust.
Chancellor George Osborne announced the sale alongside the disposal of Lloyds Bank assets worth £9bn. The taxpayer spent £20.5bn rescuing Lloyds during the 2008 banking crisis after the bank got into trouble following its purchase of Halifax Bank of Scotland.
Mr Osborne said the sale of £22bn in assets wouldn’t be used as a sweetener before the general election in May but will be used to pay down debt.
“We could treat it as a windfall, even though we know the public finances need further repair,” he said.
“And with an election looming, some of my immediate predecessors may have been tempted to do this, but that would be deeply irresponsible.
“So today, the central judgement of this Budget is this: we will use the resources from the bank sales and the lower interest payments and the lower welfare bills to pay down the national debt.”
UK Asset Resolution, the group set up to manage and sell off the Government’s stake in B&B and Northern Rock, has managed to pay back £12bn so far.
The biggest tranche was a £2.7bn sale to JP Morgan last year, which kicked off a flurry of interest from banks and private equity and prompted UKAR to appoint Credit Suisse to conduct a strategic review.
The review’s aim was to repay the Government as soon as possible whilst ensuring customers get a good level of service.
Credit Suisse concluded there was definite interest in B&B and Northern Rock’s assets as well as the team behind the day to day running of the mortgage business.
The £13bn sale is expected to include Granite, a securitisation vehicle originally established by Northern Rock in 2001.
At the same time UKAR will explore potential options for selling the day to day mortgage servicing activities.
The decision to run-down the mortgage book means that as each year passes there will be fewer customers for UKAR to deal with. This would free up staff to work in a separate operation running other mortgage books.
Rising house prices and low interest rates have encouraged borrowers to look elsewhere for deals, meaning that UKAR’s mortgage loan book has fallen dramatically.
UKAR said any sale will be contingent on achieving value for money for the taxpayer.
UKAR‘s chief executive Richard Banks said: “The potential to accelerate the repayment of Government loans has been made possible by the positive market conditions.
“We have also demonstrated that our mortgage servicing capabilities are successful in delivering value.”
The Government has so far raised £8.5bn selling Lloyds shares, cutting its stake to under 23 per cent. It said any further sales will be subject to market conditions and getting value for taxpayers.
The planned sale would take the Government’s stake in Lloyds to about seven per cent, based on current share prices.
“Five years ago they (Labour) were bailing out the banks, now we’re selling more bank shares,” said Mr Osborne.
At its interim results UKAR said that 94 per cent of mortgage customers are up to date with their monthly payments.
Customers who were three or more months in arrears, including possessions, fell by 11 per cent to 13,746.
The total value of arrears owed by customers fell by 13 per cent to £105.2m.
Repossessions are continuing to fall and totalled 1,526 in the six months to September 30.
UKAR said underlying profits of £693m were 17 per cent higher than the comparable period in 2013/14.
UKAR is a big employer in the North with over 2,000 staff.