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Northern Rock lending policy criticised
Even though Northern Rock managed to dodge the bullet following the timely intervention of Chancellor Alistair Darling and his ‘cast-iron’ guarantee for savers funds, the criticism has steadfastly refused to subside, and now debt counsellors are fiercely rebuking the bank regarding its home loans lending practices and policies.
The counsellors believe that many Northern Rock borrowers are set to lose their homes because of practices involving the granting of mortgages. Beleaguered chief executive Adam Applegarth has resolutely defended the bank against such allegations pointing out that his company’s default rate on mortgages is half that of other institutions. However, his defence has fallen on deaf ears as debt counsellors queue up to condemn the company. Along with money advisors and others that deal with debt and insolvency the counsellors are quick to express their concern at the level and type of the bank’s lending.
The Together mortgage has attracted particular criticism as it offers the opportunity to borrow up to 125% of the value of the property purchased. 95% of the value of the property is covered by a traditional mortgage, and the remaining 30% is offered as a secured loan. As house prices accelerated rapidly this type of lending has not caused concern as the value of the property soon exceeds the outstanding loan. However, in the current market where price rises have significantly slowed, and in some areas gone into reverse, this is now causing considerable concern in terms of the bank’s exposure and also in the prospect of people owing much more than their property is worth. This type of mortgage, particularly the secured loan element, also tends to be more expensive.
Personal insolvency expert Graham Tough, a partner at accountants Martin Aikten & Co. has dealt with approximately 4,000 personal insolvency cases over the past five years and believes that a disproportionate amount of between 10% and 20% involved Northern Rock as a major creditor. He said: “I was concerned that Northern Rock’s lending for the Together mortgage would lead to more repossessions in Scotland and raised that with the bank’s legal department. Although there was an acceptance of the problem, it was made clear to me that it was a management-driven policy.”
Northern Rock however steadfastly defends its mortgage and secured loans lending policy. Spokesman, Ron Stout said: “We do not lend inappropriately with any of our products. Sometimes customer circumstances change which may cause them to have repayment difficulties, but at the outset we responsibly and rigorously assess whether the customer can afford our loans. It is neither in ours nor the customer’s interest to lend irresponsibly.”
