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Categorized | Banks

Battle for UK government-owned mortgage portfolio heats up

Posted on November 24, 2016

Competition for £16bn of UK government-owned mortgages is heating up as more than 50 parties have expressed interest ahead of a sales deadline before Christmas.

UK banks and US private equity groups are among the 50 financial services companies that signed up for information memorandums on the buy-to-let portfolio of former Bradford & Bingley loans, according to bankers involved in the process.

A smaller number of parties comprising private equity groups Cerberus and Blackstone, and a group of UK banks, such as TSB, have made first round bids, one banker said.

UK Asset Resolution, the body in charge of offloading the £16bn of mortgages, is expected to make a decision imminently on which parties reach the second round, with final bids due in before Christmas, according to one bank chief executive.

The asset sale will represent the largest by a government in Europe, in a process that UKAR expects to complete by early 2018.

The Bradford & Bingley loans were taken over when the former building society was rescued by taxpayers in 2008, while its branches and deposits were bought by Santander.

The launch of the process last month, which could involve selling portions of the loans to groups of buyers, comes after chancellor Philip Hammond unveiled plans to offload the taxpayers’ remaining stake in Lloyds Banking Group by early 2018. Mr Hammond said the government would sell shares to the market above a certain price, which was not disclosed, through a “trading plan”. The government’s stake in Lloyds fell below 8 per cent this week.

The move to push ahead with a sale of the Bradford & Bingley loans comes as attempts to offload other state-backed assets stalls.

The Office for Budget Responsibility, the fiscal watchdog, said on Wednesday that it expects the government will not be selling down its 72 per cent holding in Royal Bank of Scotland for at least another five years. RBS shares are down more than 30 per cent year to date, languishing at 204p.

The government sold off a £13bn portfolio of former Northern Rock mortgages last year to Cerberus, a portion of which was subsequently bought by TSB.

The Bradford & Bingley portfolio is expected to be a sold at a discount, as the customers are paying a low interest rate on their mortgage repayments. The portfolio has an average loan-to-value of 60 per cent.

UKAR said: “We can confirm that we have launched the first phase of a programme of asset sales that could ultimately enable the phased repayment of the Financial Services Compensation Scheme loan. This is a confidential process and it would be inappropriate to provide further comment.”

Cerberus declined to comment, while Blackstone and TSB could not be reached for comment.