‘Bad bank’ repays bigger than expected £2.1bn to taxpayer

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UKAR, which manages the closed mortgage businesses of Bradford & Bingley and Northern Rock Asset Management, repaid the taxpayer £2.1bn last year – almost double the amount it expected to pay back.

UKAR reported a 145 per cent increase in underlying 2011 pre-tax profits to £1.1bn as fewer home-owners had trouble with repayments.

UKAR’s chief executive Richard Banks said B&B has started to repay its Government loan with £150m repaid in 2011.

“We had assumed we wouldn’t make any repayments,” he said. “We expect to repay another slug this year and we expect to make more repayments from B&B than Northern Rock (Asset Management).”

He added that the low interest rate environment has helped, while B&B has also seen the benefit of operational efficiencies.

“B&B’s arrears level is down 33 per cent,” he said. “We have got around £25bn in buy-to-let, around 60 per cent of the mortgage book.

“Buy-to-let has really benefited from the current environment as people can’t get mortgages as easily as they could in the past so more people are renting.”

Last year the company phoned up more than 10,000 customers to advise them to change their spending habits or risk repossession when interest rates start to rise.

It hopes to recruit another 50 staff, split between Crossflatts in West Yorkshire and Doxford in Sunderland, to continue the process this year.

“We will be a lot more pro-active this year,” said Mr Banks.

“We will phone customers up and give them advice about where to seek help from non-fee paying debt advisory services.”

UKAR has learned to spot various signs that customers might be getting in trouble. These include altering the direct debit dates, switching from direct debit to manual payment and the direct debit bouncing. Mr Banks said the 50 recruits referred to full time staff and it might equate to 100-150 part time workers.

UKAR has been set the task of running down the loans held by Bradford & Bingley and Northern Rock, which both had to be rescued when they ran into trouble in the credit crisis.

UKAR still owes the Government £46.6bn, down from £49.7bn when it was formed in October 2010.

Mr Banks said he expects to repay the majority of the remaining Government loan over the next decade, with repayments accelerating as home loans are repaid.

He added that arrears are likely to rise this year, despite the fact interest rates are not expected to rise until 2013.

“We think interest rates are going to remain at the low level for the next 12 months, but there are still pressures on disposable income, which is going to make life hard for some of our customers,” he said.

“We expect more customers to experience difficulties during 2012.”

UKAR now has 657,000 mortgage customers, down from 726,000 a year earlier, and properties more than three months in arrears fell by 14 per cent to 33,216 at the end of December.

2011 saw a much higher level of redemption than UKAR had expected after the company cancelled early repayment charges, prompting customers to switch to other mortgages.

However, Mr Banks expects the redemption level to slow considerably this year as customers that could remortgage did so last year.

UKAR is willing to sell portfolios of loans to accelerate the pace it repays the Government, but so far interest from private equity firms and hedge funds had not been at attractive prices.

UKAR also paid £688m to the Government last year in interest, fees and corporation tax.

The taxpayer should ultimately make a profit of up to £11bn on its bailout of Northern Rock, but may have to wait another 15 years to get all the cash

With B&B the profit could be as much as £22bn based on projection that the Government could claw back £49bn. It initially put in £27bn in 2008.

UKAR’s lending balances fell by 10 per cent to £75.3bn in 2011, enabling the repayment to the Government, but the business still remains the sixth biggest mortgage provider in the UK. It has 722,000 customers.

Richard Pym, chairman of UKAR, said it was “our expectation and our determination” to repay the debt in full without loss to the taxpayer.

The organisation said more than 90 per cent of its customers are fully up to date with their payments, a similar level to last year, but that it made 37,000 mortgage arrangement and account modifications to assist customers.