Concerns have been raised about Metro’s recent sale of loans to private equity fund Cerberus but the challenger bank assured customers nothing will happen to their mortgages.
In the bank’s half yearly results, published on the stock exchange on Wednesday (July 24), Metro confirmed that a £521m slice of its loan book had been sold to US-based private equity firm Cerberus Capital Management.
Before the sale the cross-party parliamentary group for mortgage prisoners urged Metro not to sell the loans to Cerberus — an inactive lender who is unable to offer borrowers new deals or better rates.
Such a sale can create mortgage prisoners, who are predominantly borrowers who took out a mortgage before the financial crisis but are now blocked from switching to better rates due to changes in lending practices.
Seema Malhotra MP, chair of the APPG on mortgage prisoners, said the sale highlighted “severe weaknesses” in the regulation of mortgage lending as consumers could find their loan “sold on to an unregulated entity” and therefore “trapped paying a high interest rate”.
Cerberus has hit the headlines over the past years after the government sold old Northern Rock and Bradford & Bingley loans to the firm after the financial crisis.
Ms Malhotra previously urged Metro to give assurances it would only sell the mortgages to fully regulated, active lenders who were willing to offer its customers new deals after reports of the sale circulated earlier this week.
But Metro has claimed the sale is an exact reversing of a deal made back in 2017 between the two firms, in which Metro bought the same portfolio from Cerberus for £596.7m.
The bank has since confirmed the sale will bring an expected loss of £1.8m which reflects the difference between the sale price and the carrying amount on the balance sheet.
According to Metro, the lender for the portfolio has been Capital Home Loans — a wholly-owned subsidiary of Cerberus — both before and after the original sale and that this will continue to be the case.
Therefore, the bank stated, there would be no impact on the mortgage holders as the mortgage rates and ability to re-mortgage or switch were set by CHL — not Metro or Cerberus.
Paul Riseborough, chief commercial officer at Metro, said: “The loans in this portfolio are not Metro Bank-originated mortgages. There is no impact on these mortgage holders as a result.”
Metro bought the portfolio back in June 2017 when its chief executive said the bank’s performance had gone from “strength to strength” and the acquisition supported its “high-growth” business model.
But the bank experienced an embattled start to 2019. It looked to sell the loans in an effort to raise capital after a miscalculation in its loan book risk level caused the bank to over-report its capital ratios, its share price to plummet, and its profits to drop 84 per cent in the first half of 2019.
Vernon Hill, the challenger lender’s chairman, also announced he would step down.
The Financial Conduct Authority is currently consulting on changes to its mortgage lending rules to try and help mortgage prisoners, but had admitted the shake up would not help all consumers “trapped by their mortgage”.
Speaking at a Treasury select committee hearing, the FCA boss Andrew Bailey said one of the “only options” would be to expand the regulator’s scope to include all mortgage lending and the sale of mortgage loans.
But chief executive of the Association of Mortgage Intermediaries, Robert Sinclair, accused the FCA of "not being brave enough" to tackle the problem effectively.
In April, the government was accused of potentially creating more mortgage prisoners when it sold old Northern Rock loans to inactive lender, Citi, but the Treasury said they had been unable to find an active lender for the deal.
imogen.tew@ft.com
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