UKAR Annual Report & Accounts 2014

03 Jun 2014

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UKAR report Bradford and Bingley report NRAM report



As announced in the 2012 full year results UKAR has changed the Group's accounting reference date from 31 December to 31 March in order to align the year end with HM Treasury. These results are for the extended 15 month transitional reporting period to 31 March 2014. Where appropriate to show a year on year comparison, the unaudited 12 month period to 31 March 2014 is used in this announcement to compare with the unaudited 12 month period to March 2013.

UK Asset Resolution Limited ('UKAR') which incorporates Bradford & Bingley plc ('B&B') and NRAM plc (formerly Northern Rock (Asset Management) plc) ('NRAM') today issues its results for the 15 month period ended 31 March 2014. UKAR's mission is to maximise value for the taxpayer. Having integrated the two businesses, our objectives are to optimise the balance sheets to facilitate the orderly repayment of the government loans, whilst serving our customers well and treating them fairly.

Key highlights

  • Government loan repayments of £5.1bn and other payments of £1.1bn made to taxpayers for the 15 months. This brings total government loan repayments to £10.4bn since the formation of UKAR in October 2010.
  • Mortgage accounts three or more months in arrears, including possessions, have reduced by 39% to 15,483 since December 2012.
  • Underlying profit before tax was £1,523m for the 15 months and £1,259m for the 12 months to 31 March 2014, £186m higher than the 12 months to 31 March 2013.
  • Costs down 9% year on year compared to the 12 months to March 2013 and 32% since the formation of UKAR in 2010.
  • Balance sheet assets have reduced by £40.9bn since formation of UKAR in 2010 from £115.8bn to £74.9bn.
  • Completed the £400m sale of the NRAM standalone unsecured personal loan book.
  • Additional provisions of £116m have been set aside against inherited issues relating to the redress of various legacy errors, including PPI claims. Included in this figure is £47m provided in June 2013 for further redress of CCA loans.

Richard Banks, UKAR Chief Executive, commented:

"UKAR has continued to make good progress over the past 15 months, with government loan repayments of £5.1bn bringing total repayments to over £10bn since the formation of UKAR. It is also pleasing to see the significant reduction in arrears due to the dedication and professionalism of colleagues proactively working with our customers to help them achieve the right outcomes."

Media Contact: Investor Relations Contact:
Brunswick UKAR
Nick Cosgrove / Pip Green
Tel: +44 20 7404 5959
Neil Vanham
Tel: +44 1274 806341


1. Financial Information

Underlying profit before tax for the 15 months was £1,523.2m and £1,259.1m for the 12 months to 31 March 2014, £185.5m higher than the 12 months to 31 March 2013. The increase in comparable profits was primarily due to a lower impairment charge, as the result of continued improvements in the level of arrears and rising house prices.

Since formation in October 2010, UKAR has repaid £10.4bn of government funding, including £5.1bn in the 15 months to 31 March 2014 (2012: £3.1bn). Repayments have been funded largely from a 11% reduction in lending balances (£7.5bn) reflecting £5.8bn of secured residential redemptions, £0.4bn from the sale of the NRAM standalone unsecured personal loan book, £0.1bn of unsecured redemptions, £0.2bn of commercial redemptions and £1.0bn of regular repayments. As at 31 March 2014 lending balances stand at £61.2bn (2012: £68.7bn). The Balance Sheet has reduced by £40.9bn from £115.8bn at formation to £74.9bn at 31 March 2014.

Other cashflows were generated for the government in the 15 months in the form of interest, taxes and guarantee fees, totalling £1.1bn (2012: £0.9bn) bringing total payments to the taxpayer in the period to £6.2bn (2012: £4.0bn).

The sale of the NRAM standalone unsecured personal loan book for £0.4bn was completed in July 2013 and generated a profit before tax of £21.2m. Net cash proceeds from the sale were used towards the repayment of the NRAM government loan during the third quarter of 2013. We continue to actively consider other opportunities to sell parts of our loan book where the potential transaction would be in the best interests of the taxpayer.

Absolute arrears levels for both B&B and NRAM continue to fall as a direct consequence of proactive arrears management coupled with the continued low interest rate environment.

The total number of mortgage accounts three or more months in arrears, including those in possession, reduced by 39% from 31 December 2012 to 15,483 cases as at 31 March 2014. The total value of arrears owed by customers has fallen by £64.6m to £121.2m since 31 December 2012, a reduction of 35%.

The more positive housing market and improving economic outlook will also have helped some of our customers by reducing LTVs and providing more options for them to remortgage elsewhere, either now or at the end of their mortgage term.

As reported in the September Interim Report we have completed the integration of the operations of the two businesses and the transfer of our IT infrastructure to a new supplier giving us reduced costs and increased operational flexibility. Ongoing administrative expenses for the 15 months were £246.3m and £189.8m for the 12 months to March 2014, representing a run-rate which is 9% lower than the £207.5m for the 12 months to March 2013.

Medium term targets for the three years to 31 December 2013 on value creation and loan repayments were agreed with the shareholder in 2011 and these targets have all been exceeded.

2. Customers and Conduct

In total, UKAR has almost 467,000 customers (2012: 614,000), with 529,000 mortgage accounts (2012: 586,000) and 119,000 unsecured personal loan accounts (2012: 228,000). The majority of these loans continue to perform well with more than 93% of mortgage customers up to date with their mortgage payments.

Support for customers experiencing payment difficulties

Whilst the economy is improving and our absolute levels of arrears are reducing, we continue to see a number of customers facing financial difficulty including some entering arrears for the first time. In all cases, we work closely with customers to offer a range of solutions to help them manage their circumstances. We endeavour to contact all customers within two days of a missed payment, to understand their specific situation and discuss how we can help. This proactive approach allows us to address any issues quickly and explore solutions to achieve positive outcomes for customers.

During the last 15 months, 60,000 arrangements were successfully completed (2012: 48,000) and approximately 2,000 account modifications were made (2012: 4,000) to assist customers with the repayments of their mortgage. The reduction in the latter reflects the much lower numbers of customers now falling into arrears.

Research conducted by YouGov and the Money Advice Service shows that individuals who seek advice are twice as likely to have their debt become manageable within 12 months compared to those who do not. We work proactively with not-for-profit debt advice agencies who provide free assistance to help customers reorganise their finances and ensure, wherever possible, that they can continue as homeowners. We signpost their services to our customers, however, as a consequence of our proactive approach and the significant reduction of customers in arrears, the number of debt advice referrals has fallen in the last 15 months to 4,761 (2012: 6,073).

In some circumstances, however, the most appropriate course of action is for the customer to sell their property and we support this process, where suitable, through assisted voluntary sales. Repossession proceedings for customers in arrears are viewed as a last resort but unfortunately, in some situations this is inevitable and the best course of action to prevent further indebtedness. The rate at which properties have been taken into possession continues to slow, totalling 6,996 in the 15 month period, an average of 466 per month (2012: 611 per month).

Where a buy-to-let landlord is in arrears we endeavour to protect tenants by honouring the terms of all valid Assured Short Hold Tenancy agreements and instructing a Law of Property Act receiver to collect rent directly from the tenant, thereby enabling the tenant to stay in the property for the duration of any agreement.


Since the creation of UKAR we have been remediating a series of errors of process and procedure inherited from the legacy businesses. The most significant of these have been the mis-selling of Payment Protection Insurance (PPI) and the issue of non-compliant Consumer Credit Act (CCA) loan documentation to certain customers. Additional provisions of £116m have been set aside for the settlement of future PPI claims, CCA redress and other inherited issues.

Although PPI complaints are slowing, new claims continue to be received, fuelled by the activities of Claims Management Companies (CMCs) who will charge customers a fee. Where a customer believes they have a claim they should contact us directly.

If and when we identify other legacy issues related to poor process and control, our intent is to do the right thing and ensure our customers suffer no detriment.

Support for customers with interest only mortgages

It is a key objective for UKAR to work with customers to achieve the most appropriate outcome for their particular situation. In addition to our contact strategies for customers in financial difficulty, a further area of focus for UKAR is whether our interest only customers have plans in place to repay their mortgage at the end of their term. We have been proactively contacting interest only customers, with mortgage terms of ten years or less remaining. As of March, we have contacted over 31,000 customers, reminding them of their obligations and explaining how we can help. We have had a very high response rate, which is encouraging, with over 50% responding and sharing their repayment plans with us. Many have also signed up to our Interest Only Review Programme, so we can remain in contact in the future. This campaign will be rolled out to further cohorts of interest only customers during the second half of 2014.

Support for customers who are susceptible to interest rate rises

The improving economy increases expectations of future interest rate rises. Although we anticipate interest rates will only rise slowly, feedback from our customers suggests that a proportion will struggle to maintain their mortgage repayments if rates rise significantly. We are, therefore, developing a series of contact programmes for cohorts of customers who may be at more risk when interest rates begin to rise, for example, those customers who will still be repaying their mortgage in retirement. Our focus is very much on helping customers think about their mortgage and financial future and to take steps to ensure they are in a more positive position.

3. Help to Buy: mortgage guarantee scheme

In June 2013 the government announced that UKAR will provide administrative support to the Help to Buy: mortgage guarantee scheme. The scheme launched on 8 October 2013 and is being administered by UKAR through a separate subsidiary, UKAR Corporate Services Limited ('UKARcs'). The scheme is fully funded by HM Treasury and is being run by UKARcs on a nil-gain nil-loss basis. UKARcs is responsible for reviewing application documentation from lenders, monitoring activity in the scheme on behalf of HM Treasury, processing claims (claim eligibility, loss assessment and payments) and making any adjustments to claims as required by the scheme rules.


In October 2013 we announced the departure from the Board of Phillip McLelland, Finance Director, who left to take up a new role. We also announced that UK Financial Investments Limited ('UKFI') had nominated Christopher Fox as one of their representative Non-Executive Directors to represent the government's shareholdings in UKAR, replacing Jim O'Neil. In addition, Lady Patten stepped down as a Non-Executive Director at the end of 2013 having served on the B&B Board since 2003. As a consequence of these changes the UKAR Board now comprises the Chairman, four independent Directors, two UKFI nominated Directors and one Executive Director.


With effect from 1 December 2013, Ian Hares, who was previously Investment Director, was appointed as Finance & Investment Director.


The signs are that the UK economy is continuing to recover, both in terms of growth and employment and in the housing and mortgage markets. House prices have increased faster than expected over the past 15 months, which, combined with continued low rates of interest, is good news for our customers and has driven increased redemption activity. However, despite the more positive conditions, many households continue to be under financial pressure. This, together with the prospect of interest rate rises and higher mortgage payments, will be a concern for many of our customers.

In order to help ensure our customers can continue to afford their mortgage payments in the future, we are increasingly focusing on ways to help them plan ahead, to consider their financial situation and the long-term affordability of their mortgage.

We have repaid over £10bn of the government debt and completed the creation of a single business. The Board is looking to the future and continues to keep under review options for accelerating the repayment of government debt and realising value from the operational expertise that has been developed. A lot of good work has been achieved to date and we expect to repay the remaining £38.3bn debt in full.


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