Despite the record low Bank of England base rate, UK Asset Resolution (UKAR), which holds the toxic mortgage books of the nationalised former building societies, yesterday said it expected pressure to build on its borrowers this year.
UKAR yesterday reported growing profits for both B&B and NRAM, as Northern Rock’s loan book is called.
B&B reported a surge in first-half underlying pre-tax profits to £152m from £83.6m a year earlier as bad debt writedowns fell. Its charge for bad debts dropped by £117.4m to £44.1m.
NRAM repaid £1bn to taxpayers in the first half of the year, taking it to £2.1bn repaid within 18 months. It reported underlying pre-tax profits of £344.1m, up from £181.8m a year earlier.
“Our aim is to maximise value for the taxpayer and we have accelerated the repayment of Government debt with a further £1bn repaid in the first half of 2011,” said UKAR chief executive Richard Banks.
“Arrears at NRAM are beginning to stabilise whilst arrears at B&B continue to reduce. However, we remain cautious about the future as there is continuing pressure on household finances.”
The state-backed loan books, nationalised at the height of the credit crunch, have benefited from the 0.5 per cent base rate, which is allowing the bulk of its borrowers to repay their loans and stay in their homes.
“This is an artificial situation and it gives some people some relief that interest rates are lower,” said Mr Banks. “However, with VAT, petrol and food price increases, disposable incomes are already being hit. People are having to modify their behaviour already.
“We are predicting that because of the general increase in the cost of living, over the next six months there are going to be more customers who become distressed and fall into arrears.”
B&B’s loan book, which is largely comprised of buy-to-let mortgages, saw the number of loans in arrears by at least three months fall to 3.6 per cent from 4.1 per cent at the end of 2010.
There were 10,956 B&B mortgages in possession at the end of June, a 16 per cent fall.
However, at NRAM, the three-month arrears rate increased to 7.4 per cent from 6.6 per cent.
Its repossessed properties increased six per cent to 27,010.
The industry average arrears rate, according to the Council of Mortgage Lenders, was 2.09 per cent in the first quarter of 2011. “NRAM is 99 per cent residential customers,” said Mr Banks. “They are customers who tended to buy at the height of the housing boom and tended to borrow when their incomes were at their highest.
“I would describe that book as somewhat more fragile than the average.”
B&B’s buy-to-let landlord borrowers are largely benefiting from a variable mortgage rate of 2.25 per cent, he added.
However, Mr Banks said across UKAR’s book, 90 per cent of its customers were up to date with their payments. He added any increase in rates would be “equal and opposite” for UKAR, boosting both profits and bad debts.
B&B was taken over by the Government in 2008, while the group’s savings book and branch network was sold to Spanish bank Santander. NRAM was later merged with B&B under the UKAR umbrella. The Government is meanwhile trying to find a buyer for the other half of Northern Rock, which includes more than 70 branches and a £12bn mortgage book.
B&B still owes the taxpayer £27bn and NRAM’s loan stands at £20.7bn. Mr Banks said he believed UKAR could have largely repaid the Government within a decade
UKAR, which has its headquarters at B&B’s Crossflatts home in Bingley, provides more than £80bn of loans to 850,000 customers, making it Britain’s fifth-biggest mortgage lender. While it merged the “bad” loan books of B&B and Northern Rock last year, each retains its own balance sheet.
Mr Banks added he expected B&B to begin repaying the taxpayer at some point over the next year. It is still satisfying obligations to external creditors.
He aims to make UKAR a “low-cost service provider”. During the first half B&B’s costs fell 10 per cent to £52.6m, mainly thanks to investment in phones and IT.
NRAM’s costs were down 28 per cent to £75m after it joined B&B to form UKAR.