Belfast Telegraph

UKAR says 10% of customers may struggle if interest rates rise percentage point

Britain's "bad bank" has warned up to one in 10 of its customers could struggle if interest rates were to rise by just one percentage point.

UK Asset Resolution (UKAR) - the state-owned group responsible for winding down the mortgage books of failed lenders Northern Rock and Bradford & Bingley - said between 5% and 10% of its 148,000 customers could face financial difficulty if rates rose from 0.25% to 1.25%.

That could mean up to 14,800 borrowers under pressure.

The warning over the threat of rising interest rates comes as the Bank of England's Prudential Regulation Authority (PRA) also stepped up its scrutiny of the lending sector amid fears over ballooning consumer borrowing.

It has ordered lenders to prove by September they are not taking on too much risk as part of a crackdown launched after unsecured consumer borrowing on credit cards and car finance has surged by more than 10% a year.

Bank governor Mark Carney last week said that lenders were "forgetting the lessons of the past" as he told banks to put aside another £11.4 billion to cushion them from financial shocks.

Interest rates could go up as soon as August, according to some economists, with mounting support among Bank policymakers for a rise to 0.5%.

UKAR, which is known as the sector's "bad bank", raised its concerns over rate rises as it published annual figures showing it shrunk its balance sheet to £23 billion, down from as much as £116 billion in 2010.

Its profits fell sharply as it incurred losses on loans sold off - down to £346.9 million for the year to March from £1.18 billion a year earlier.

The group said more than 93% of its mortg age customers are up to date with their monthly payments, adding that those in arrears fell by 28%.

But it cautioned it continues to see "a number of customers facing financial difficulty including some entering arrears for the first time".

UKAR has repaid £3.3 billion to the Government in the last year.

It recently sold off £11.8 billion worth of former B&B loans to Prudential and US private equity firm Blackstone.

But the threat of r ising arrears at the group could hamper efforts to sell off the remaining assets.