UK Asset Resolution Limited (UKAR), the holding company for Bradford & Bingley (B&B) and NRAM, has concluded a competitive sales process for the sale of a £860m portfolio of equity release loans to Rothesay Life.

The portfolio comprises equity release mortgages from the legacy books of NRAM, B&B and Mortgage Express (MX) and is secured on residential property assets in the UK. The sale is based on the portfolio position as at 30th April 2018, from which point the purchaser will acquire the risks and rewards of ownership of approximately 6,200 NRAM, B&B and MX mortgages.

Financial completion is expected within the next few weeks at which point the interest rate swaps held against these mortgages to hedge the risk of changes in interest rates will be terminated. These swaps were taken out more than ten years ago when the loans were originated in line with good risk management practice. Due to the fall in long-term interest rates, there is a cost on termination which is expected to exceed the profit on the sale of the loans, resulting in a net overall accounting loss which will be reflected in our interim accounts.

The interest on the mortgages in the portfolio is rolled up and is payable when customers pass away or move into long-term care and include a No Negative-Equity Guarantee (NNEG) protection for the customers’ estate. Given the performance of the housing market since the loans were originated, the NNEG is a key factor in assessing the value of the portfolio and estimated that it is likely to have adversely impacted the sale price by around £200m. As a result of this transaction, UKAR expects to repay approximately £1 billion of the government loan which is made up of a number of components in addition to the actual sales proceeds. Following repayment, UKAR will have repaid 94% of its loans from the government.

Ian Hares, Chief Executive Officer, said “This is another step in the reduction and simplification of our balance sheet. When complete, this sale will reduce UKAR’s balance sheet to £13bn, a 90% reduction since formation. The transaction delivers against our overarching objective to dispose of assets which protect and maximise value for the taxpayer whilst treating customers fairly.”

The sale has been authorised by the Chancellor of the Exchequer. The Chancellor of the Exchequer, Philip Hammond said “We’re continuing to recover the money the taxpayer committed during the financial crash, and the sale of these loans moves us one step closer. The proceeds of this sale will go towards reducing our national debt.”

Following this transaction, UKAR now owns c.£13 billion worth of assets, down from £21 billion in September 2017 and from £116 billion in 2010.