UKAR took over the mortgage loans of the two former banks following the credit crunch, with the aim of managing those mortgages and repaying the £48.7bn of government funds that were used to prop the businesses up.
Over the last year, UKAR said it has sold off four portfolios of loans, which had allowed it to reduce the balance sheet from £11.4bn to £8.4bn, as well as provide the money needed to make the final payment to the government.
This includes a sale of an £860m portfolio of equity release loans to Rothesay Life PLC and a portfolio of £100m of commercial loans to Davidson Kempner and Arrow Global.
The firm said: “Although smaller in size than previous asset sales, these transactions were no less complicated and were an important step in our strategy to reduce the complexity and size of our balance sheet.”
The sale of mortgages to investors, rather than active lenders, has been a source of huge controversy in the market as this can create mortgage prisoners who are unable to remortgage to new, cheaper deals even though they have never missed a repayment.
The FCA has proposed amending its rules to make it easier for these prisoners to pass the more stringent affordability tests introduced since they took out their original mortgages, while an all party parliamentary group is conducting an investigation into the issue.
There are concerns that Tesco Bank’s decision to sell off its mortgage loan book could lead to the creation of a new swathe of prisoners.
‘Proactive arrears management’
UKAR now manages loans for 35,000 customers, with lending balances having fallen to £5.5bn. UKAR said that more than 92 per cent of those loans are “performing well”.
The number of mortgage accounts in arrears of three months or more has fallen over the year from 3,582 to 3,085, which the business put down to a combination of “proactive arrears management” and the low interest rate environment.
It repossessed 931 properties over the year. According to data from UK Finance, 4,710 properties were repossessed by the industry as a whole over that same period.
UKAR said that its performance in 2018/19 “positions us well” for its strategy of clearing the remaining Northern Rock and Bradford & Bingley loans during 2020.
Ian Hares, chief executive at UKAR, said that he was delighted to have repaid the government loans within a decade, noting that its balance sheet was now 94 per cent smaller than when the business was first formed.
He added: “Looking forward, we are focussed on the disposal of the remaining government investments in Northern Rock and Bradford & Bingley while ensuring that customers are appropriately protected.”