TSB flotation: High-risk mortgages account for almost half of bank's home loans

Bankers described TSB’s interest-only loans as extraordinary, eye opening and extremely high

Associate business editor

TSB admitted that nearly half of its residential mortgage book is made up of high-risk interest-only home loans – more than twice the comparable proportion at the Nationwide Building Society.

The admission was made in the prospectus for the “challenger” bank’s flotation as its shares were given a price range of between 220p and 290p, below the £1.6bn “book” value. Were the shares to come in at the mid point, the bank would be capitalised at £1.275bn when it joins the market.

TSB has been sold to investors as a low risk, UK only retail bank that will be able to challenge the existing players by picking up disillusioned customers.

However, the bankers spoken to by The Independent described the fact that 45 per cent of its residential mortgages are interest-only loans as “extraordinary”, “eye opening” and “extremely high”.

Regulators became alarmed at the overall number across the market last year and secured an agreement with the Council of Mortgage Lenders to contact all borrowers with loans due to mature by 2020 to warn them of risks.

People without effective repayment vehicles such as ISAs or endowments could be forced to sell their homes and downsize if they can’t repay.

Figures from the Council of Mortgage Lenders show that out of 11.2 million mortgages in Britain at the end of 2013 there were 2.2 million interest-only home loans with 620,000 that were part interest-only. Together they represented 25 per cent of the total. The number was down 12 per cent compared to 2012.

Britain’s biggest building society Nationwide had brought its figure at the end of 2013 down to 21.4 per cent, compared to 26.3 per cent  in 2012.

HSBC, generally considered to be a relatively conservative lender, gave a figure of 37 per cent in its year-end accounts while the proportion of such loans at Barclays is understood to stand at just over a third.

The figure for the bank which is floating TSB, Lloyds, was 41 per cent at the end of 2013, down from 44.6 per cent at the end of 2012.

Lloyds is having to sell TSB to comply with the requirements of EU watchdogs imposed as a result of the state aid the bank received during the financial crisis. Some 25 per cent of the shares will go this time, with two or three more sales expected follow.

In its prospectus TSB said of the interest-only loans: “TSB faces risks associated with the concentration of its credit risk, geographically and relating to its interest-only mortgage portfolio, which amounts to approximately 45 per cent of TSB’s residential mortgage lending as at 31 March 2014.

 “As these mortgages near maturity, TSB may face greater repayment and asset quality risks than competitors with a lower proportion of interest-only mortgages.”

The bank also cited the fact that Lloyds will be responsible for its IT and other services as a risk, given that Lloyds has “no experience of providing services of a comparable breadth and scale to a third party financial institution”. It admitted that its ability to operate would be “jeopardised” were Lloyds to hit fresh problems.

TSB said it planned to increase its share of the current account market from 4.2 per cent to 6 per cent, which is its share of bank branches. It has 631 in total and is planning to relocate some and refurbish others. It claims to have branches within two miles of most Britons.

With 4.5 million customers, TSB said the business made an underlying profit of £172m last year, compared with £28m in 2012 and £57m in 2011. It could ultimately pay between 40 and 60 per cent of its earnings as dividends. 

The Banksy image in Folkestone before it was vandalised
Life and Style

Sales of the tablet are set to fall again, say analysts

football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister

Met Police confirm there was a 'minor disturbance' and that no-one was arrested

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010

George Lucas criticises the major Hollywood film studios

Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'

Does Chris Grayling realise what a vague concept he is dealing with?

ebooksAn unforgettable anthology of contemporary reportage
Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style

I Am Bread could actually be a challenging and nuanced title

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Salisbury ranked seventh in world’s best tourist cities

The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album