28th June 2011
Richard Banks, chief executive of the state-backed UK Asset Resolution, wants all banks to be firmer with people in arrears and has called for ‘tough love' to make sure people do not fall even deeper into debt.
UK Asset Resolution was formed to take on what are termed ‘underperforming' mortgages where borrowers may be in arrears. When Northern Rock was split in half, into what was termed a ‘bad bank' and a ‘good bank', UKAR took the bad part.
It also took customers from Bradford & Bingley, another bank effectively nationalised, though once again some ‘good bank' assets were taken over by Santander and merged into what was previously Abbey National. Unlike Northern Rock, the B&B brand has disappeared.
Both banks, which were former building societies, are regarded as having run very loose lending policies in the housing boom.
UKAR has 23,000 customers who are more than six months in arrears out of a total customer base of three quarters of a million which, given its component parts, may not seem too bad.
But Banks is worried about what would happen if interest rates had to rise steeply. Speaking to the Guardian, he said: "You can see if you don't do something about it, you can see a tsunami. If you don't get into the hills you could get drowned by this. If you don't manage this properly it could get very messy."
The bank with £80bn worth of mortgages is actually the UK's fifth largest. Many of the mortgages on the bank's books are self certified mortgages where people have stated their own income before obtaining a loan. Fears that people may have been overstating their income have led the FSA to consider a ban. Some consumer advocates and tabloid journalists have termed them liar loans.
The other type of mortgages are generally buy to let mortgages, a particular speciality of Bradford and Bingley, where borrowers may have overextended themselves in a bid to buy several properties. Some people bought off plan in new developments using buy to let mortgages with no idea whether there would be demand for the properties or not.
Although the Bank of England voted against a rate rise this month and is not expected to raise rates soon, there are fears that inflation may be becoming embedded in the economy particularly if it stokes wage claims.
The Bank of England has come under pressure to raise rates from the Organisation for Economic Cooperation and Development and international banking regulator, the Bank for International Settlements, which this week described the Bank of England's low interest policy as ‘unsustainable'.
The previous day the Guardian warned about repossession hotspots in Britain.
Ironically, one of the hotspots it reports on is in Bradford, Yorkshire, where Bradford & Bingley was headquartered. Here is the view of the Bradford Telegraph & Argus also in an interview with Banks to give the local perspective.
But it is Corby in Northamptonshire that is the worst in England. It forms part of a band of areas at high risk of repossessions running across the middle of the country and illustrated by this map from homeless charity Shelter also run by the Guardian, a few weeks ago.
Back in March, Moneyweek issued this report warning about the number of mortgage customers in the UK on standard variable rates i.e. those loans must susceptible to big rises in mortgage rates.
However This is Money Editor Andrew Oxlade suggests that the chances of rate rise soon have diminished.
His article is also written with savers in mind, who will of course be hoping for rate rises.
Here is an advice guide from the Citizen's Advice Bureau for those in mortgage arrears.
This is a website of the national debt line.
And a guide for those worried about arrears from the lender's trade body – the Council of Mortgage Lenders .