MPs have urged Metro Bank not to sell its customers’ loans to a ‘vulture’ US hedge fund amid fears a rumoured deal could create mortgage prisoners.
This follows the news originally broken on Sunday by Sky that the embattled bank is exploring the sale of a mortgage portfolio reportedly worth up to half a billion pounds back to US hedge fund Cerberus Capital Management.
This would leave customers buy-to-let investors and homeowners owing money to an unregulated lender that would not offer them new deals and could leave some stuck on relatively high standard variable rates.
Metro Bank are reportedly looking to sell £500million mortgage book to a US hedge fund
Metro has bought over £1billion in loans from Cerberus in recent years, much of which is secured against buy-to-let properties. However, as much as £58million could be in residential lending.
The bank is now reportedly looking to sell back some of these loans as it gears up to release its half year results tomorrow, sparking fears that more mortgage prisoners could be created in the process.
Cerberus does not have permission to sell mortgage products in the UK, meaning mortgage holders whose debt is held by the firm cannot be offered new deals.
This often means homeowners whose mortgages are with a company like this can become stuck paying high interest rates on their loans and dubbed mortgage prisoners.
Seema Malhotra MP, co-chair of the all party parliamentary group on mortgage prisoners told This is Money: ‘This highlights severe weaknesses in the regulation of mortgage lending where consumers can find their mortgage sold on to an unregulated entity with no consultation which can leave them trapped paying a high interest rate.
‘The cross-party APPG has recommended that there should be a ban on mortgage sales to unregulated and inactive lenders.
‘It is vital that Metro bank give assurances that it will only sell mortgages to fully regulated active lenders which are willing and able to offer its customers new deals.’
Yesterday the bank confirmed that it was looking to sell a book of mortgages.
A statement issued by the company said: ‘Metro Bank notes 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.
‘There can be no certainty at this stage that an agreement will be reached. A further announcement will be made if and when appropriate.’
US billionaire Vernon Hill launched Metro in 2010 but has recently faced calls to step down
In February last year, the bank purchased a £523million mortgage book from Cerberus. At the time, Metro said the book was secured mostly on properties in the south east and London and had a similar credit profile to its current book.
Company filings issued last year indicate that 98 per cent of this portfolio was made up of buy-to-let mortgages.
This came eight months after a similar book of UK mortgages was purchased by the bank from the private equity firm for £596.7million.
Metro said at the time that while the majority of the portfolio was buy-to-let, some 8 per cent was owner occupied.
This could potentially mean that these two books combined contain up to £58.19million in residential mortgage lending.
It is widely anticipated that it is one of, or part of, either of these books which Metro is looking to sell, but this hasn’t been confirmed by the bank.
This is Money asked the bank to elaborate further on the nature of the portfolio being sold, and whether any residential mortgage customers would be affected, but it declined to comment further, except to add that there will be ‘no impact to customers’.
Cerberus has come in for repeated criticism for its treatment of mortgage customers
Fears over Cerberus and mortgage customers
Cerberus Capital Management was branded a ‘hound from hell’ by Stephen Kerr, Tory MP for Stirling, earlier this year as it came in for criticism for its handling of mortgage customers over the past decade.
The US private equity has hoovered up loan books valued at more than £20billion from major British banks and the UK Government since the financial crisis.
It has bought at least £6.7billion of loans from the Royal Bank of Scotland, £2.7billion from Lloyds Bank and £1.8billion from the National Australia Bank, which at the time owned Clydesdale Bank and Yorkshire Bank.
The majority of the purchases occurred between 2013 and 2014.
In 2015, UK Ministers agreed to sell 270,000 Northern Rock mortgages worth £13.3billion to a consortium led by Cerberus – a record sale of UK state assets at the time.
In a letter to Metro Bank chief executive Craig Donaldson, director of pressure group the SME Alliance, Nicky Turner, said: ‘It was shocking to see that Metro Bank is considering selling £500million of mortgages to Cerberus, a US hedge fund which as you may be aware has an atrocious reputation for its aggressive approach to debt collection.
‘There are numerous examples of former customers of RBS, Lloyds, Clydesdale Yorkshire Bank, Northern Rock and others being evicted from their homes or facing massive increases in costs following the acquisition of debt portfolios by Cerberus or its subsidiaries.
‘Given the evidence of the aggressive tactics deployed by Cerberus causing widespread distress, I ask you to consider whether it is appropriate for Metro to consider passing its customers onto such an organisation, and the potential damage to the reputation of Metro if these customers are treated in the same manner as those who, through no fault of their own, fell into Cerberus’ clutches.’