UK bad bank boss warns of 'rate hike' danger

The head of Britain's “bad bank” has warned that more than 60,000 of its mortgage customers could be put at risk by Bank of England moves to raise interest rates.

UK Asset Resolution chief executive Richard Banks, the man charged with running down the loan books of bailed-out Northern Rock’s “bad bank” and Bradford & Bingley, has now repaid £10.4 billion to the taxpayer since 2010, leaving £38.3 billion outstanding.

The wind-down of the book has been helped by recovering house prices and low interest rates, helping thousands to remortgage elsewhere, while also boosting UKAR’s pre-tax profits 17 per cent to £1.26 billion for the year to March 31.

Total mortgage arrears fell 39 per cent to 15,483 cases but Banks today said he was braced for a huge rise in customers struggling to keep up repayments when the Bank begins hiking rates.

Threadneedle Street is expected to begin raising interest rates from historic lows of 0.5 per cent in February next year with official borrowing costs eventually settling at around 3 per cent.

More than 93 per cent of Banks’s 529,000 mortgage customers are up to date with repayments but he said: “If interest rates rose by 1 per cent then a further 22,000 customers, around 7 per cent of the customer base, might struggle or go to into arrears.

“You could probably multiply that by three if interest rates went to 3%. It is a very real concern to us that interest rates rise rapidly and significantly. The Bank of England in its signalling has made it clear that interest rates will rise gradually rather than dramatically and suddenly.”

Interest rate rises will make things “more difficult” he added: “We know the customers who’ve definitely got problems because they’re in arrears. The trick is trying to work out which customers may be in problems when interest rates rise. We are starting a programme of contacting customers we think may be most at risk.”

UKAR has sold off almost £1 billion in loans in the past two years and will consider more sales if in the taxpayer’s interest: “We see increasing activity in the market... but we aren’t in the market for selling assets at discounts.”

The company has 2200 staff running down the loan books. Banks is considering options to sell the business infrastructure, “possibly” to another bank.

He said: “We have spent £180 million-plus on putting these businesses together and creating something of value... the question is whether we can do something different with the business.”