There has been significant speculation the lender was looking to offload part of its book after regulators found it had underestimated the risk level of around £1.7bn of its £4.1bn commercial and buy-to-let loans.

In early February the lender pulled its range of portfolio commercial buy-to-let (BTL) products.

Then in May Metro Bank raised £375m in capital from shareholders through a discounted share offer to cover further capital requirements for the underestimated loan book.

However, the bank is now also looking to further improve its capital position by selling part of its mortgage book.

According to reports from Sky News over the weekend, a deal worth around £500m is set to be completed with US hedge fund Cerberus Capital Management.

The lender has previously bought more £1bn of assets from Cerberus .

The report added that the deal could be completed by Wednesday, when Metro’s half-year results are due.

Discussions ‘taking place’

In its statement, Metro Bank said it was aware of the recent press speculation regarding a potential disposal of a loan portfolio.

“The company regularly assesses various opportunities in the market and accordingly confirms that discussions regarding the potential sale of a loan portfolio are taking place,” it said.

“There can be no certainty at this stage that an agreement will be reached. A further announcement will be made if and when appropriate,” it added.

That’s up from £2.85bn at the same time last year and an increase of 23% on the first quarter of 2017, when lending was £4.02bn.

The figures include the purchase of a portfolio of UK mortgages from US investment firm Cerberus on 2 June for £0.6bn. The purchased portfolio consists predominantly of buy-to-let mortgages and has a similar credit risk profile to the organic book.

The bank’s total loans and advances to customers at 30 June 2017 were £7.75bn, up 32% from £5.87bn at the end of 2016. Metro said this was driven by expansion of the bank’s residential mortgage intermediary network as well as relationships in the commercial lending team.

Pre-tax profits doubled in the quarter to £4m, from £2m in Q1. Deposits from customers are up 49% year on year to £9.8bn and the bank has passed the one million customer account mark.

Craig Donaldson (pictured), the bank’s chief executive, said: “This has been another great half year for Metro Bank with extremely strong organic lending supported by a c£600m book purchase increasing our loan to deposit ratio to 79%.

“This, taken together with continued strong deposit growth at a reducing cost of deposits, have led to us doubling our profits quarter on quarter, and reporting our fourth consecutive quarter of profitability.”

Vernon Hill, chairman and founder at Metro Bank, added: “Our ability to meet the banking needs of business, commercial and retail customers in and outside London is proving to be an attractive proposition for British consumers and businesses alike. In the last six months alone we have opened a further 130,000 accounts.”

Highlights from the refreshed range, for mortgages under £2m, include a rate of 1.74% available up to 65% loan-to-value (LTV), 1.84% available up to 70% LTV and for borrowers with a 25% deposit, a rate of 2.04% is available.

Rate cuts of 10 basis points have also been made to the bank’s two and three-year fixed rates at 85% LTV.

Charles Morley (pictured), director of mortgage distribution at Metro Bank, said: “Given the widespread uncertainty at the moment, we want to provide our customers with rates that will not only benefit their pocket, but will give them peace of mind for the long term.”

Earlier this month, Metro Bank spent almost £600m to acquire a package of UK mortgages from US investment firm Cerberus.

The deal, for £596.7m, will see the challenger bank pick up a portfolio that consists of 92% buy-to-let mortgages, with the remainder owner-occupied.

The deal, for £596.7m, will see the challenger bank pick up a portfolio that consists of 92% buy-to-let mortgages, with the remainder owner-occupied.

Metro Bank chief executive Craig Donaldson said: “Our lending and deposit growth has gone from strength to strength and the acquisition of this high-quality loan portfolio supports our high-growth, organic business model as we track ever closer to our 2020 guidance.”

“In particular the acquisition increases the loan to deposit ratio to circa 78% (2020 guidance circa 80%). The portfolio complements our existing mortgage book and demonstrates our willingness and ability, helped by our strong deposit growth, to take advantage of opportunities as they arise.”

The deal is being financed using cash from existing resources, with the portfolio acquired at a discount to par, Metro Bank said.

Diversified risk

All lending in the loan book is secured on property, which Metro Bank said is “well diversified across the UK” and has a similar credit risk profile to the group’s current mortgage book.

The lender added that the portfolio has a weighted average seasoning of around 10 years and the weighted average loan to value is circa 70%, with a current expected pay rate of 1.6%.

Metro Bank has seen a substantial increase in new mortgage lending over the last year as the bank continues its expansion.

Gross lending grew 12% in Q1 2017 compared to the last three months of 2016, and was up 57% on Q1 2016.

The bank made £4.023bn in total residential mortgage gross lending and advances to customers in the three months to March this year and reached its one millionth customer last month.

In its last trading update in April, the bank saw a 13% increase in deposit growth and underlying pre-tax profits rose from £1.5m to £2m.

International investment vulture funds from Cerberus, Goldman Sachs and Lone Star snapped up mortgage debt, development land and properties in Europe at bargain prices after the credit crunch. The funds provided much-needed capital, particularly for the Irish economy when other investors retreated and UKAR sold Northern Rock’s assets to Cerberus in November 2016.

However, their treatment of customers led the Irish Government to regulate debt purchase more stringently.

Cerberus has attracted consumer complaints in the UK and Ireland caused by heavy-handed debt collection practices and a failure to pass on SVR cuts to Northern Rock borrowers.

The sale was put on hold earlier in the year due to heightened market uncertainty after the Brexit vote.

The Treasury has now given the go ahead for UK Asset Resolution (UKAR) to begin sale proceedings once again, according to a report by The Times.

Non-disclosure agreements are scheduled to be sent out to potential buyers this week.

Bradford & Bingley was bailed out by the government in the 2008 financial crisis after heavy buy-to-let lending and debt led to a collapse in its shares.

UKAR was set up to manage both Bradford & Bingley and Northern Rock in the wake of the 2008 crash.

Some £13bn of residential mortgages previously issued by Northern Rock were sold to Cerberus, an American private equity firm, and £3.3bn were sold to TSB Bank.

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It is thought some 100,000 Northern Rock customers will not see a reduction in their standard variable rate following the Bank of England’s 0.25% cut to interest rates, after a slab of Northern Rock’s loan book was sold by the government’s holding company, UK Asset Resolution, to Cerberus in November.

The board of directors at Landmark, which oversees the portfolio sold to affiliates of Cerberus Capital Management last year, said the fact it was a wholesale funded entity and a non-deposit taking bank meant it did not directly benefit from the Bank of England’s rate cut.

Some ex-Northern Rock borrowers will benefit from the rate cut, however, with around 34,000 customers now part of an entity managed by TSB, called Whistletree.

Lord McFall, a founder of the New City Agenda think tank and former Treasury Committee chair, raised concerns that many Northern Rock customers could be classed as mortgage prisoners, and are unable to move to another lender and secure themselves a better deal.

In a statement, Landmark said: “Landmark continues to demonstrate a strong commitment to being an excellent corporate citizen and a good steward of the Northern Rock portfolio. It has ensured that its borrowers are receiving exemplary service and care in accordance with the highest industry standards.

“Unlike TSB and other similar institutions, Landmark is not a deposit taking bank and, as a wholesale funded entity, it does not directly receive the benefit of reduced funding costs flowing from the BoE’s rate cut. To the contrary, Landmark’s funding costs are exposed to increases in the wholesale funding market, and the impact of Brexit on the housing market in general, and the acquired portfolio in particular, must be considered,” it added.

“Landmark will continue to monitor the markets and carefully consider the balancing of the expectations of its investors and customers in the context of the heavily negotiated transaction with UKAR and the issues relating to the market dynamics impacting interest rates.”

Borrowers whose mortgages are now being serviced by Cerberus Capital Management, an estimated 100,000, will fail to see the 0.25% rate cut announced this month applied to mortgage repayments.

Last year, Cerberus bought Northern Rock mortgages worth £13bn from the government’s holding company, UK Asset Resolution (UKAR), with £3.3bn of the loans sold on to TSB – equivalent to 34,000 customers.

Those customers now being managed by TSB under an entity named Whistletree, are already benefitting from a 0.25% cut to their standard variable rate. Customers still with Northern Rock Asset Management will also receive a reduction to their mortgage rate.

Lord McFall, a founder of the New City Agenda think tank, has campaigned for Northern Rock customers to receive a fair deal from the numerous sales. In January, McFall wrote to UKAR urging for borrower protection against changes to the terms and conditions to their mortgages, while calling for an option to introduce fixed rates to allow customers greater certainty over their mortgage repayments.

In another letter sent earlier this year by former economic secretary Harriet Baldwin to Andrew Tyrie, chair of the Treasury Committee, 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.

McFall said: “UKAR’s failure to put in place adequate protection has left former Northern Rock customers facing a lottery as to whether they benefit from the Bank of England’s rate cut.”

There are also concerns that a securitisation deal for £2.7bn of mortgages sold to Commercial First as part of a group of firms led by JP Morgan will not benefit from a reduction to their SVR, due to the terms of the 3-month LIBOR agreement set out under the deal.

Whistletree will provide a ‘safe haven’ for Northern Rock customers and receive the same benefits as those received when being managed by the government’s holding firm UKAR.

TSB confirmed it had no plans to lend new mortgages through the brand.

In November, UKAR sold £13bn of its Northern Rock book to Cerberus Capital Management, with TSB reported to be taking on a random selection of the loans, which would see 34,000 borrowers managed by the challenger bank.

TSB said borrowers managed by Whistletree would receive ‘a high level of customer service’.

Padraig Carton, customer service operations director, said: “We are delighted to welcome these customers to Whistletree from today.

“Supporting hardworking people and helping local communities right across Britain to thrive is absolutely at the heart of what TSB was set up to do. Whistletree is a natural extension of this,” he added.

“The terms and conditions of the existing loan agreements will remain unchanged. Customers transferring to Whistletree are being informed by letter this week with full details of what action, if any, they need to take.”

According to Sky News, UK Financial Investments (UKFI) which looks after the loans on behalf of the taxpayer, has started appointing advisers to examine a possible privatisation of a significant Bradford & Bingley loan book.

Investment banks have been circulating a document regarding the potential to privatise the book.

Last year the government disposed of tens of thousands of Northern Rock mortgages worth £13bn, with a significant chunk being sold to US private equity firm Cerberus Capital Management and a smaller portion to TSB.

MPs, including Conservative and chair of the Treasury Select Committee Andrew Tyrie, criticised the sale at the time, raising concerns that Northern Rock borrowers may be adversely affected.

The government bailout package for Northern Rock during the financial crisis was £21.7bn and £27bn for Bradford & Bingley.

However, the final sale of the Bradford & Bingley book is expected to be some way off as the government completes its sale of its Northern Rock assets.

Speaking to Sky News, a source working in the City said: “This is a scoping exercise designed to look at these assets, and what the options might be and whether a privatisation might be possible.

“At this stage, it is no more than that.”