What do Metro Bank’s financial woes mean for customers?

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After a turbulent week during which it urgently sought to raise capital, Metro Bank — known for its airy branches, money machines and dog bowls — has been saved by its existing bond holders.

The challenger lender’s success in dodging a potential acquisition or a run on the bank is good news for depositors and borrowers. But customers may still have questions, as Metro looks to sell about £3bn worth of its mortgages.

What happens if my mortgage is sold off?

This isn’t the first time Metro has sold mortgages — NatWest acquired £3bn of its book in December 2020. Older homeowners may also remember the November 2015 sale of more than £13bn of former Northern Rock mortgages to private equity firm Cerberus.

Borrowers are protected from an immediate impact, because lenders must keep in place the same terms and conditions of any mortgages they buy. However, when those loans are sold, the acquirer will be able to set charges applicable to those mortgages, as well as service levels.

As the prospective buyers are mainly large UK retail banks, it is unlikely that borrowers will end up in a situation where there are no new deals to switch to and they are forced to stay on their previous mortgage.

Following a precipitous drop in the number of mortgage products last year after the “mini” Budget, the market has largely returned to normal in terms of product availability.

There are 5,495 fixed and variable rate deals available to borrowers, the highest number since March 2008, according to data provider Moneyfacts. A year ago, just 2,248 mortgage products were available on the market.

You say I’m protected from an ‘immediate impact’. Would I have to remortgage if my loan went to a different lender?

The precise impact will depend on the buyer of the mortgage. In the case of Cerberus and Northern Rock, the private equity firm faced criticism for failing to pass on a cut in interest rates to mortgage holders. However, many of those bidding for Metro’s mortgages are UK retail banks, which are likely to follow the market.

Although an increasing number of homeowners take a fixed rate mortgage compared with 2015, those on variable rates will nevertheless be affected as these figures change. (With the Bank of England base rate at its likely peak, fixed rates have been slowly trending down in recent weeks.)

I’ve got savings with Metro. Should I move them elsewhere?

With the new deal in place, Metro is back to being a safe bet, though there are higher rates on instant access, fixed-term deposits and Isas at banks such as JPMorgan’s Chase UK or neobank Monzo. Under the Financial Services Compensation Scheme, Metro depositors are protected up to a limit of £85,000 in the event of an insolvency.

I’m not with Metro, but I have savings with another challenger bank. Is there any danger this spreads elsewhere?

Both challenger banks and analysts have been adamant that there is no contagion risk because the problems at Metro are both long term — arguably stretching back to its founding bet on branch networks — and idiosyncratic. That mirrors the UK experience following the collapse of Silicon Valley Bank in the US. In the UK, there was limited “flight to safety” to large banks.