Taxpayer ‘bad bank’ warns customers of rate hike risks

The ‘bad bank’ that is running down the mortgage books of failed lenders Bradford and Bingley and the half of Northern Rock that was not acquired by Virgin Money has said it is contacting customers to warn of the risks of impending interest rate rises.

While the economy is improving and absolute levels of arrears are reducing, Richard Banks, chief executive of UK Asset Resolution, said the business continues to see a number of customers facing financial difficulty including some entering arrears for the first time.

The results also revealed concerns about the impact of future interest rate rises. Mr Banks said feedback from customers suggests a proportion will struggle to maintain their mortgage repayments if rates rise significantly, even if they do so slowly.

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Mr Banks said UKAR was therefore developing a series of “contact programmes for cohorts of customers who may be at more risk when interest rates begin to rise”, for example, those customers who will still be repaying their mortgage in retirement.

He also said the bank had been contacting clients that were already at risk in terms of overall affordability, such as interest-only customers.

“We have been proactively contacting interest only customers, with mortgage terms of ten years or less remaining. As of March, we have contacted over 31,000 customers, reminding them of their obligations and explaining how we can help.

“We have had a very high response rate, which is encouraging, with over 50 per cent responding and sharing their repayment plans with us.

“Many have also signed up to our interest-only review programme, so we can remain in contact in the future. This campaign will be rolled out to further cohorts of interest only customers during the second half of 2014.”

Mr Banks added: “The signs are that the UK economy is continuing to recover, both in terms of growth and employment and in the housing and mortgage markets.

“House prices have increased faster than expected over the past 15 months, which, combined with continued low rates of interest, is good news for our customers and has driven increased redemption activity.

“However, despite the more positive conditions, many households continue to be under financial pressure. This, together with the prospect of interest rate rises and higher mortgage payments, will be a concern for many of our customers.”

Results published today (3 June) for the 15-month period ended 31 March 2014 reveal mortgage accounts three or more months in arrears, including repossessions, have reduced by 39 per cent to 15,483 since December 2012.

Mr Banks said while repossession proceedings were viewed as a last resort 6,996 homes fell into this situation in the 15-month period, an average of 466 per month, down from 611 per month in 2012.

The results also reveal so far £10.4bn has been paid back to the government since the formation of UKAR in October 2010, which leaves the “bad bank” with £38.3bn still owed.