Treasury sells £13bn of Northern Rock mortgages

The Government has sold �13 billion of Northern Rock mortgages to investment firm Cerberus Capital Management
The Government has sold �13 billion of Northern Rock mortgages to investment firm Cerberus Capital Management

The Treasury has sold £13 billion worth of mortgages it took from failed bank Northern Rock during the financial crisis.

The proceeds will be used to pay down the national debt, currently standing at about £1.5 trillion. This equates to around 0.86 per cent of the total.

The sale - which has raised £280 million more than the book value of the loans - could provide a timely boost to the public coffers for Chancellor George Osborne, set to deliver his Autumn Statement speech later this month.

The loans were sold by UK Asset Resolution (UKAR), the “bad bank” created in 2010 to run down the loans in Northern Rock and Bradford & Bingley, to investment firm Cerberus Capital Management; the US -owned firm which last year purchased the Northern Ireland loan portfolio of NAMA - the equivalent to UKAR in the Irish Republic.

Mr Osborne said it was now clear that taxpayers would receive more money from Northern Rock than they put in and the move means the Government has offloaded more than 85 per cent of the assets of the former bank.

“Today marks another major milestone in clearing up the mess left by the financial crisis, with the sale of former Northern Rock mortgages.

“The highly-competitive process, unprecedented scale and the fact that these mortgages have been sold for almost £300m more than their book value demonstrates the confidence investors have in the UK, which has only been made possible by the success of our long-term plan.”

Ukar chief executive Richard Banks said: “The sale of this loan book is a significant step in accelerating the repayment of our government loans and demonstrates our continuing success in maximising value for taxpayers. I am also delighted Ukar will continue to service these loans.”

TSB Bank will take on £3.3bn of the former Northern Rock mortgages and loans from Cerberus, meaning it effectively becomes the lender to an additional 34,000 homeowners across the UK.

TSB CEO Paul Pester said the bank was well-placed to take on the loans as it had one of the highest capital ratios in the industry.

“In addition, they will significantly enhance TSB’s profitability which, in turn, will help us to continue to deliver our growth strategy - helping us to bring more competition to UK banking,” he said.

As with the broader sale, the terms and conditions of the existing loan agreements will remain unchanged and UKAR mortgage servicing arm will continue to service the loans.

UKAR said the sale would include residential mortgages and unsecured loans from the legacy book of Northern Rock Asset Management (NRAM).

The sale represents a £280m premium over book value at June 30 2015, according to UKAR, which added that it expects to repay around £5.5bn of the NRAM Government loan as a result of the transaction.