Lender sells portfolio of high-risk mortgages worth billions

May 12, 2015 by Brendan O'Neill

Lenders

The Co-operative (Co-op) bank has recently sold £1.5bn of its ‘risky’ mortgage portfolio, after it failed stringent stress tests set by the Prudential Regulation Authority (PRA) at the end of 2014.

Back in 2009 the Co-Op took on the Britannia Building Society, including its £6bn Optimum mortgage portfolio. Made up of a selection of sub-prime, buy-to-let and self-certified loans, the portfolio actually boosts its capital buffer to just under 14%.

However, the latter part of 2014 saw the Co-op fail the PRA’s stress tests, in which banks must prove that they have sufficient capital to weather any negative impact that may affect the economic environment.

The test failure meant that they needed to draw up and submit their plans to enhance their capital buffer by selling around £5.5bn of their high risk assets. The initial smaller sale of £1.5 billion is no doubt a key element in its plan to sell the Optimum portfolio.

A number of mortgage providers are looking to sell off some of their riskier lending portfolios, as they aim to help support an improvement in economic conditions, and they are proving a popular purchase for private equity firms and hedge funds.

The Co-op confirmed that it is aiming to have sold the full Optimum portfolio over the next couple of years.

As a mortgage advisor who has finished their CeMAP training and obtained the recognised qualification after passing the exam, you can interview customers in line with your employer’s processes and procedures, whilst complying with the regulation laid out by the Financial Conduct Authority (FCA).