'Don't call us the bad bank' - what Northern Rock did next
Reeling from a run - the first on a British bank for more than a century - and nationalisation soon after, the state of Northern Rock was mirrored by its Sunderland offices.
The sparsely populated premises at Doxford Business Park had fallen into such a poor condition that part of the roof would eventually blow off.
Now, the building has been renovated into the sleek, open-plan nerve centre of UK Asset Resolution (Ukar) - the Treasury-owned company that has the job of running down the rump of the Rock.
Those in charge believe that the state-of-the-art, largely transparent customer operations centre reflects the way in which the business is now run, albeit with very different ambitions.
Ukar oversees the shaky side of the mortgage books of Northern Rock and Bradford & Bingley - the parts of the banks that could not be sold off to the likes of Virgin. Its job is not to offer new home loans but to run down those old, riskier deals while keeping a roof over mortgage-holders' heads when possible.
But the boss, chief executive Richard Banks, doesn't like the phrase "bad bank". Only 5% of mortgage customers - nearly 30,000 people - are in arrears with mortgage repayments, a figure that is falling. The Treasury is steadily being paid back, with the announcement of further loan repayments to government expected imminently.'Wise to invest'
It is not a household name. When asked, some customers thought Ukar (pronounced U-kar) was a motor dealership.
What is UKAR?
- Following nationalisation in 2008, the "good" parts of Northern Rock were sold to Virgin and the savings and retail branch business of Bradford & Bingley was sold to Santander
- UK Asset Resolution (Ukar) is a holding company that brings together the remains of these businesses - Northern Rock Asset Management and Bradford & Bingley
- Ukar is 100% owned by the Treasury - ie the taxpayer - but is managed independently by UK Financial Investments Limited (UKFI)
- Ukar oversees the existing mortgages and loans of more than half a million customers of Northern Rock, Bradford & Bingley and the latter's former buy-to-let arm Mortgage Express
In fact, letters to customers are headed with the names of the specific lenders - Northern Rock Asset Management, Bradford & Bingley or Mortgage Express.
Yet, the decisions it makes affect the homes and day-to-day finances of nearly half a million people, many of whom stretched themselves almost to breaking point during the housing boom prior 2008.
Amit Rao, 32, is typical. He bought a one-bedroom flat in Watford at a time when he says lenders were "handing mortgages out like Smarties".
He signed up to Northern Rock's Together mortgage, which was popular before the credit crunch and allowed homebuyers to borrow the full price of the property plus an unsecured loan on top.
"I thought it was wise to invest, and that you couldn't go wrong with property," he says.
But things did go wrong for him. The bank collapsed and had to be rescued by government, the value of his property fell, and his job moved further away from home. Northern Rock Asset Management can no longer offer fixed-rate deals, so when his deal expired he had to move to the Rock's more expensive standard variable rate (SVR). No other lenders were willing to take him on.
This is common among Northern Rock Asset Management mortgage holders. Nine out of 10 of them are on the SVR of 4.79%.
Mr Rao moved back in with his parents to cut his costs.
Eventually he changed the conditions of the mortgage so he could rent the flat out to tenants, but the rent he gets in does not cover the mortgage repayments.
The property is still worth less than his outstanding mortgage - known as negative equity - and he feels stuck.
"I can't really move on with my life," he says.
"My biggest fear is that interest rates go up soon, and rise to a level that I can't sustain repayments."Interest rates prediction
He says he would welcome some guidance and communication from the lender, explaining his options.
Ukar says that it can help customers in this situation review their monthly incomings and outgoings and may put borrowers in touch with independent mortgages brokers who could help find a new fixed-rate deal with another lender.
Yet, chief executive Mr Banks points out: "It is not our job to be a social service."
Still, he admits he worries about the effect that an interest rate rise would have on customers, predicting the first increase in the Bank rate to come early in 2015.
He says that 25% of their mortgage customers could face serious difficulties in making mortgage repayments were the Bank rate to rise to 5%. It is currently at a record low of 0.5%.
Meanwhile, there will always be those who face money problems as a result of redundancy or marital breakdown, he says, who will start getting behind on their bills.
Customers who miss a mortgage repayment can expect a phone call within two days. Text messages and letters may follow. But, says Jim Waddell - Ukar's head of customer assistance, this is not a debt collection call, but an attempt to prevent any problems spiralling out of control.
- Ukar oversees a mortgage book of 553,853 home loans, worth £62.3bn (September 2013)
- 38% of the mortgage book is buy-to-let
- Some 28,634 accounts, 5.17%, were one month in arrears on repayments (end of September 2013)
- Some 18,993 accounts, 3.43%, were three months in arrears
- Some 4,841 properties were repossessed in the nine months to the end of September
A huge banner hanging from the ceiling above his team displays the phone number of the National Debtline, aimed at encouraging those struggling with debts to get help from the charity in drawing up a repayment plan.
Elsewhere in the Sunderland complex, calls have been made to prevent more long-term debt troubles.
Every customer with an interest-only mortgage deal, where the term will end and the final lump sum will be due within 10 years, received letters asking how the borrower intends to pay off the balance.
Every lender has done something similar, following an agreement with the regulator, but only for those with terms ending by 2020.
From September, those with interest-only deals where the balance is due in more than 10 years' time, will also start to receive letters from Ukar asking about their financial plans.Repair job
Mr Banks, whose career included director level positions at Alliance and Leicester, says that it is refreshing - but unusual - to be a mortgage lender who does not have to worry about sales.
His job, and his target, within the next 10 years is to pay back the £50bn or so of government loans that it needed to start the job of running down a book of 553,853 home loans worth £62.3bn.
The more successful Ukar is at running down the mortgage book, the quicker the organisation will disappear, which makes staff motivation a challenge.
But, for now, Mr Banks - a DIY enthusiast - and his staff take pride in having "put together and repaired" two broken bits of the UK banking system, Northern Rock and Bradford & Bingley.
"It is testament to what skilled operators our staff have to be. They have to be behavioural psychologists while obeying the rules," he says.
Ultimately, their success will depend on whether - like the refurbished offices in Sunderland - they can keep a roof over their customers' heads.