Government to restart £16bn Bradford & Bingley sale

Another chapter in the UK banking crisis could soon be closed, after the government confirmed it has given the green light for a sale of £16bn worth of Bradford & Bingley mortgages.

Plans to offload the loan book were originally announced by former chancellor George Osborne at the Budget in March, The Times says. The process was put on hold in the summer amid turmoil on markets.

Now the Treasury has told UK Asset Resolution, the government agency that manages "bad bank" loans, including those related to Northern Rock, to proceed with the first phase of the disposal.  

The Times says the decision amounts to "a further sign of renewed confidence in the economy", which is showing surprising resilience in the wake of the Brexit vote.

Bradford & Bingley expanded rapidly through heavy lending to buy-to-let landlords and failed at the height of the financial crisis in 2008. Its branches and deposits were acquired by Spanish bank Santander, while its loans were nationalised.

At that time, 14,326 of the mortgages were "in arrears or repossession". That number has fallen to 2,803.

The sale is expected to take place over a series of transactions. The original timetable provided for the process to be completed by the end of the 2017/2018 financial year.

Proceeds from the sale would allow the Treasury to repay a £15.65bn loan taken out by the Financial Services Compensation Scheme (FSCS) to bail out Bradford & Bingley eight years ago.

As the FSCS is funded by the industry, Britain's high street banks have effectively been servicing those loans and are thought to have paid out as much as £2bn in interest since 2010.

"They will be motivated, therefore, to get involved in the sale, most likely by providing debt funding to buyers," says the Times.

The sale would mark the largest ever asset disposal by a European government. The UK holds the current record, for the £13bn Northern Rock loan portfolio it offloaded last year to US equity firm Cerberus and TSB.