US private equity firm Cerberus Capital Managament bought the Northern Rock book of £13bn of mortgages from UK Asset Resoultion (UKAR) in November 2015. The loan book was made up of performing and non-performing residential mortgages alongside unsecured loans from Northern Rock Asset Management (NRAM), dubbed the ‘bad bank’ when Northern Rock split up its assets.
Harriett Baldwin, economic secretary, laid out the safeguards for borrowers in a letter to Andrew Tyrie, chairman of the Treasury Select Committee.
Many Northern Rock customers are unable to remortgage away from the lender because they have insufficient equity in their homes or have a credit profile which does not fit post-Mortgage Market Review criteria. As the loan book is broken up and sold back into the private sector borrowers face the threat of a new mortgagee raising the SVR while being powerless to change products.
Tyrie asked Baldwin what impact the sale of the mortgages to Cerberus would have on customers. Baldwin said that while the terms of conditions of the mortgages would remain the same Cerberus, like any other lender, had the commercial right to raise SVRs.
“Clearly, in setting SVRs, the new owners will have an eye to their own commercial interests, which in itself will act as a check against rates being raised above the wider market for fear of losing customers to other mortgage providers,” said Baldwin.
But she added UKAR had put an additional protection in place, securing an agreement from Cerberus that it would not increase SVRs by more than any increase in the Bank of England base rate for a 12 month period after the sale completes.
She said this was consistent with the approach that UKAR had taken on previous sales and struck a balance between providing an additional protection to customers while not undermining the ability to secure value for the taxpayer through the sale.
Any decision to increase the SVR must be considered alongside the Treating Customers Fairly principles which Baldwin said needed to be applied not only to those who could easily remortgage but also to those who could not.
She added: “To be clear, if the FCA considers that the new owner of any of these mortgages is varying its SVR in a way that is unfair to any of its customers, then it has the necessary powers to act to ensure that customers are properly protected – just as it has on any other UK regulated mortgage.”