Northern Rock Offers Loans Again, But At What Cost?
We reported last week that Northern Rock, which was the first bank to be nationalised by the Government, is to start offering new loans to borrowers once more with £14 billion worth of new lending to be made available over the course of the next two years.
However, the recently published annual report for Northern Rock has revealed the extent of the problems with many of the existing loans which have been issued by the lender over recent years, with levels of arrears and repossessions reaching an all time high.
The main problems for the bank have arisen through its “Together” range of products which offered loans of up to 125 per cent loan to value. These products were taken out (amongst others) by many people wanting debt consolidation loans, but who did not have sufficient equity in their property to apply for a traditional secured loan.
This product placed borrowers in a negative equity situation straight away, offering high income multiples to applicants, but with falling house prices and reductions in income for many consumers, the situation has become even worse and not surprisingly, arrears levels and repossessions have increased dramatically.
The total level of arrears of three months or more on Northern Rock loans has increased to 2.92 per cent, compared with 1.87 per cent in September last year, but the same figure for “Together” loans stood at 4.53 per cent. At the same time, the lender saw the number of properties repossessed due to defaulting on homeowner loans increase by 63 per cent over the course of last year.
During 2008, Northern Rock was actively attempting to reduce its homeowner loan book in order to repay its Government loan and despite making huge losses last year, it has achieved its target to date, albeit by adopting fairly drastic measures.
