Northern Rock mortgage sell-off: what customers need to know
The government has agreed to sell a £13 billion chunk of the debt it bought when it acquired Northern Rock mortgages during the financial crisis – accounting for around 125,000 mortgage and loan customers. Here’s a roundup of what you need to know if you held one of these products.
UK Asset Resolution (UKAR) – the “bad bank” that was created to buy the assets of failing companies in the wake of the financial crisis – has agreed to sell £13 billion of mortgages and loans to US private equity firm Cerberus, which in turn is going to sell on £3.3 billion of these loans to TSB.
£12 billion of the loans were originally made by Northern Rock, though a further billion was from other sources.
How do I know if my loan was sold?
The deal is expected to complete in March 2016, and all affected customers will be contacted directly at this point.
After completion, around 34,000 Northern Rock customers will become TSB customers, and 91,000 customers will be owned by Cerberus.
Based on the information disclosed so far, around 71,000 of the customers held only mortgages, including 53,000 customers who held ‘Together Mortgages’, which allowed people to take an unsecured loan on top of their mortgage (plus 500 people who have paid off ‘Together mortgages’ but still need to repay the unsecured element of the loan).
If I’m affected, can I choose between Cerberus and TSB?
No. It’s reported that the transfer of mortgages from Cerberus to TSB will be “randomly selected”. We’ll update with more information on this when it’s available, as there could be further issues depending on the details of this process.
Do I need to do anything?
Customers “do not need to take any action” between now and March 2016, so you should continue to repay your loan as normal.
Will the terms of my loan change?
According to the terms of the deal, there will be no changes to the terms and conditions of the mortgages that have been sold.
Could the terms of my loan change in future?
Unfortunately we don’t know yet, but it’s possible. We’ve asked UKAR who will be responsible for determining future pricing changes, such as adjustments to variable rate mortgages, but have had not received a response at the time of writing.
Can I switch my mortgage elsewhere?
In theory, affected customers can remortgage like anyone else. Unfortunately, part of the problem in the first place was that Northern Rock lent at a very high loan-to-value, meaning several customers found themselves in negative equity. Additionally, the mortgage rules created in response to the crisis have created difficulties for people looking to switch to more affordable mortgages.
Where can I go if I’m struggling with mortgage debt?
The Money Advice Service, Citizens Advice Bureaux or debt charities such as Stepchange offer free help to people who are struggling with debt.
Has the government completely sold the debt it bought from Northern Rock?
Not yet. After this deal completes, around 85% of the Northern Rock’s assets will have been offloaded.
Unsecured loans mean the loan is not secured on any asset you already own, such as a house, car or other assets and so is a riskier prospect for the lender. Therefore, they usually come with higher interest rates than their secured counterparts, are less flexible and levy high redemption penalties. Most “personal” loans are unsecured.
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.