Bradford & Bingley mortgage sale raises £11.8bn

The government has sold buy-to-let mortgages belonging to failed lender Bradford & Bingley for £11.8bn.

Insurance firm Prudential and investment firm Blackstone have teamed up to buy the loans.

The government took on the mortgages of Bradford & Bingley after rescuing the lender, external in 2008.

UK Asset Resolution (UKAR), which has been handling the sale, says that terms and conditions for the 104,000 loans will not change.

The deal is one of the biggest asset sales by a European government.

"The sale of these Bradford & Bingley assets for £11.8bn marks another major milestone in our plan to get taxpayers' money back following the financial crisis," Chancellor Philip Hammond said in a statement.

"We are determined to return the financial assets we own to the private sector and today's sale is further proof of the confidence investors have in the UK economy."

Bradford & Bingley had been a conservatively-run building society, but in 1999 abandoned its mutual status and moved into riskier areas of lending.

That strategy backfired in 2008 when the UK housing market slumped amid the global financial crisis.

When Bradford & Bingley was rescued that year, its branches and deposit accounts were sold to Spain's Santander, while the government took over responsibility for the mortgages.

UKAR was set-up in 2010 to manage that portfolio of mortgages, as well as loans taken on following the collapse of Northern Rock.

It started with £116bn worth of loans on its books and the latest sale cuts those holdings to £22bn - of that £12.7bn originated from Bradford & Bingley and £9.7bn originally came from Northern Rock.

UKAR says the remaining loans are a mix of performing and non-performing loans. Around half are residential mortgages while the rest are buy-to-let.

A non-performing loan is generally classified as one where the borrower has not made a scheduled payment for more than 90 days.

When you sell a bunch of mortgages, what matters to the buyer is who the borrowers are and whether they are likely to pay their loans back.

All of these former Bradford & Bingley borrowers are buy-to-let investors.

90% are on average interest rates of only 1.75% above Bank of England base rate, which is currently 0.25%.

And, typically, they have managed to invest in more than one property, an average of 1.8 each.

In other words, out of the rubble of what remains of the stricken lender, these are the most solid looking prospects.

What's left in the portfolio which remains with the taxpayer? Some more buy-to-letters and, crucially, 56,000 residential borrowers.

They include many stuck on an interest rate of nearly 5%, thousands in financial difficulty and over a thousand who have been referred for help in dealing with debt.

Offloading these loans is likely to be much more difficult.