Northern Rock Faces Problems With High Loan To Value Mortgages
Since the collapse and subsequent nationalisation of Northern Rock last year, the newly appointed board of directors is continuing to attempt to turn the lender around and repay the money which has been pumped into the organisation by the UK taxpayer.
The mortgage and homeowner loan provider is currently on target with its repayment schedule by encouraging borrowers to redeem their loans and remortgage with other lenders, thereby returning funds to the lender. However, this plan is now facing problems due to increasing levels of arrears on the high loan to value “Together” mortgage range.
The Together range of mortgage loans allowed customers to borrow up to 125 per cent of the value of their property, instantly placing them in a negative equity situation and with house prices dropping over the course of the last twelve months, this problem has only got worse.
These loans are now causing quite a headache for Northern Rock, as customers are unable to remortgage anywhere else, due to other providers significantly reducing their maximum loan to value ratios, along with the fact that the level of arrears on these loans is increasing dramatically and accounts for a significant proportion of all repossessions, not only within Northern Rock, but within the mortgage market as a whole.
Ron Sandler, executive chairman of Northern Rock said “The arrears figures on Together loans has continued to increase at a faster rate than non Together loans. They also accounted for three quarters of property possessions during the third quarter.
As our mortgage book shrinks, this has now contributed to the fact that our proportion of arrears has increased. We anticipate that it will be more challenging in the future to maintain the 2008 redemption levels, given the significant slow down in the housing market and reduced availability of mortgage financing.”
