A subprime mortgage lender set up by former Northern Rock directors is to sell £500 million of controversial mortgage-backed securities in a deal that has alarming echoes of the financial crisis.
The plan by Belmont Green means it has packaged up and sold more than £1 billion of mortgages to investors looking to cash in on higher-risk home loans, The Mail on Sunday can reveal.
Mortgage-backed securities were made famous by the film The Big Short and have become a byword for the 2008 financial crisis.
The toxic bonds – mortgages that are bundled up and turned into securities that can be traded – caused Lehman Brothers to go bust exactly ten years ago yesterday. The collapse triggered a global financial meltdown.
Belmont, which gives mortgages to those with poor credit histories, trades as Vida Homeloans and is controlled by US private equity firm Pine Brook. It was set up in 2016 with funding from Pine Brook, which at the time was advised by former Northern Rock boss Adam Applegarth, though they have since parted ways.
Applegarth ran Northern Rock until it became one of the first victims of the subprime mortgage crisis, leading to its nationalisation. He is understood to have played a key role in setting up Belmont.
Surrey-based Belmont is now run by several senior figures present during Northern Rock's downfall.
The chief operating officer is Lesley Sewell, who was Northern Rock's IT managing director until 2010. Director Alan Newton is a lawyer who advised Northern Rock.
Chairman Steve Haggerty was Northern Rock Asset Management's commercial director, though he worked there for less than a year in 2010 so did not overlap with Applegarth, who departed before it was nationalised in 2008. Sales and marketing director Guy Batchelor was a senior vice president of Lehman Brothers' European mortgage division until 2008.
Experts have warned that millions of mortgage borrowers will struggle as interest rates are hiked up over the next few years. Last week, Bank of England Governor Mark Carney warned that rising rates could push house prices down by 35 per cent, which could trap borrowers with deals they cannot afford.
Liberal Democrat leader Sir Vince Cable said: 'What an awful combination this is. US buyout barons taking advice from one of the villains of the financial crisis to sell snake oil products.'
After the crash, banks and investors steered clear of mortgage-backed securities. However, subprime mortgage lenders have since emerged in the UK.
Belmont's chief executive David Tweedy said there was 'significant investor demand' for the controversial bonds.
This suggests they may be back in favour with investors who buy mortgage-backed securities as a way of benefiting from mortgage returns without having to lend the money themselves. Mortgages are bundled up and turned into tradable securities, which are then split into separate parts that allow investors to take different levels of risk.
The surge in low-quality mortgages financed in this way is widely understood to be the cause of the crash in the US where people were encouraged to borrow beyond their means during the credit boom.
It led to lower-paid workers such as bar staff taking out mortgages on two or three homes.
When the property bubble burst, borrowers with high-risk mortgages were unable to make payments, resulting in a ripple effect that caused banks to go bust or require massive bailouts. Economies are still recovering from the turmoil.
Supporters of so-called 'securitisations' argue that new regulations mean these bonds are now safer.
Borrowers do not apply directly to Vida for a mortgage, but are instead offered Vida mortgages by brokers. On its website, the company says: 'Vida Homeloans will accept customers that have impaired credit, subject to the limits detailed on the latest residential product rate sheet.'
It says it allows up to three county court judgments and two missed mortgage payments for residential mortgages. The firm seeks customers with impaired credit histories caused by 'life events' such as divorce or bankruptcy. These are subprime loans.
Accounts filed at Companies House last week show Vida made a £15.9 million pre-tax loss last year.
The company did not return requests for comment.
Belmont chief executive Tweedy declined to comment on the £500 million bond sale, but said the company did not just focus on customers with poor credit histories. He said: 'Belmont Green serves a wide range of mortgage customers who are not well served by the mainstream financial institutions, for a variety of reasons.'
It is the company's third securitisation since its inception in 2016. Documents for its first said around 14 per cent of the mortgages were lent to borrowers with county court judgments.
Ratings agency Moody's has given most of the bonds healthy ratings but did flag 'weaknesses', including Belmont's lending to borrowers 'who have had some adverse credit in the past'.