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London - The boss of Britain's "bad bank" has warned that rising interest rates could push thousands of its customers into arrears, potentially making it harder for taxpayers to get their money back.
UK Asset Resolution (UKAR), which is winding down the loans of Northern Rock and Bradford & Bingley, said on Tuesday it repaid £6.2bn to the government in the 15 months to the end of March, meaning it had so far paid back 10.4bn of the 48.7bn it owed.
Chief executive Richard Banks said UKAR had benefited from interest rates staying at record lows and a pick-up in Britain's economy. However, he expects rates to rise at around the end of 2014, making repayments harder for borrowers.
"We anticipate that if there was an interest rate rise of 1%, another 22 000 customers could go into arrears. Small and often over a long period would be better than sudden, very large increases," Banks told Reuters in an interview.
Bank of England governor Mark Carney said in May that the central bank was edging towards an increase in borrowing costs and most economists in a Reuters poll shared that view.
Banks said UKAR, Britain's seventh-biggest mortgage lender, had reduced arrears by working with customers in financial difficulty. It helps customers who have fallen behind on their mortgages to come up with repayment plans to prevent them having their homes repossessed and ensure the government eventually gets its money back.
The number of mortgage customers three months or more in arrears fell by 39% to 15 500 in the 15 months through March and Banks said he expected a further decline this year.
UKAR made an underlying pretax profit of £1.26bn in the year through March, up 186 million on the year before.
Banks said he expected UKAR to sell parts of its mortgage book in the next few months having received approaches from potential buyers, enabling it to accelerate the pace at which it repays the government.
"We are always looking for opportunities to sell parts of the book. There are good opportunities to sell good-performing assets at full price," he said.
UKAR last year sold a portfolio of former Northern Rock loans to US private equity firm JC Flowers and debt recovery business Marlin Financial for a combined £400m.
Banks said he was confident taxpayers would get back the money the government spent rescuing Northern Rock and Bradford & Bingley during the financial crisis. He expects the "vast majority" of the funds to be repaid within 10 years.
UKAR set aside 116 million to deal with past misconduct by Northern Rock and Bradford & Bingley, including compensating customers for mis-sold loan insurance.
