Yahoo Finance Bank Asset Sale: 125,000 Borrowers Affected
The Government's decision to sell billions of pounds worth of loans to a US private investment firm will affect 125,000 homeowners who took out mortgages with failed bank Northern Rock.
Borrowers will receive letters telling them that the companies behind their mortgages have changed, with 34,000 going to TSB - now owned by Spain's Banco de Sabadell (Other OTC: BNDSY - news) - and the remaining 91,000 in the hands of US private investment firm Cerberus Capital.
The latter takes its name from the mythological three-headed dog that guards the gates of hell. But personal finance experts do not believe there is reason for borrowers to fear that New York-based outfit will try to squeeze more from the assets, or ramp up repossessions.
These mortgages will continue to be serviced by UK Asset Resolution, the body that has managed them on the Government's behalf since Northern Rock's bail-out.
Experts point to the fact that the deals remain subject to the auspices of the Financial Conduct Authority (FCA), with strict rules on forbearance - giving borrowers a chance when they are struggling to meet repayments.
Meanwhile UKAR said the terms and conditions of the mortgages would not change. It (Other OTC: ITGL - news) added that a key consideration in selecting the bidder was the fair treatment of customers - though neither Cerberus nor UKAR would specify what this meant.
But why would Cerberus want to buy these loans if it does not plan to squeeze them?
The company did not comment about the commercial rationale behind the deal, but there are other reasons why it might find these mortgages attractive assets.
Ray Boulger, senior technical manager at independent mortgage broker John Charcol, said most of those borrowers who still had old Northern Rock loans were likely to be paying interest rates of 4.79% - far higher than deals currently on the market.
This results in a chunky profit margin for the lender - who will be able to finance the loan book much more cheaply in the current low interest rate environment.
Since they have not switched to a rival deal these customers are also more likely to be "sticky" - that is, less inclined to move to another lender - and this will not necessarily be because they find it difficult to pay.
It could be for example because their remaining loans are small, because they are interest-only or because they self-certified their income for the purposes of obtaining their loans.
Mr Charcol said he did not think borrowers had anything to worry about.
"If the Government hadn't made sure that the sale terms require lenders to treat customers fairly, they would have been under all sorts of criticism," he said.
