No Government support for Northern Rock borrowers

Thousands of Northern Rock mortgage borrowers will have no choice but to remain with the ‘bad bank', Northern Rock Asset Management, after the Government's planned split of the lender goes ahead.

During a hearing yesterday of the House of Commons Treasury Select Committee, which is chaired by John McFall, MPs were told that the Government has no plans to establish a separate process that would help Northern Rock’s beleaguered borrowers.

Under Government plans, Northern Rock is to be split into a 'good' bank and a 'bad' bank, with the ‘good’ part, containing its profitable assets, to be sold off to a private buyer as soon as possible.

Current Northern Rock mortgage borrowers, who have low loan-to-value mortgages and good track records will have the option of staying with the bank under a new owner, or remortgaging away if they meet other lenders’ criteria.

Around 85% of Northern Rock borrowers, or 476,000 people, will be transferred to the 'bad bank', where they will be stuck as they will be unlikely to meet the criteria required in order to remortgage to another lender.

Northern Rock Asset Management is highly unlikely to offer new mortgage deals to its existing borrowers. They will have to stay with Northern Rock Asset Management’s standard variable rate, currently priced at 4.79%.

Most of those who will be stranded with Northern Rock Asset Management are borrowers of the bank’s infamous ‘Together’ mortgage, which advanced up to 125% of the property’s value, effectively putting many in negative equity from day one of their taking out the loan. Since property prices have fallen, many of those borrowers have fallen even deeper into negative equity, and hence have no access to other lenders’ mortgage deals.

Approximately 10% of loans that are to be transferred to Northern Rock Asset Management, are also believed to be in arrears. Northern Rock released a quarterly statement yesterday reporting that the number of its borrowers who were unable to meet their mortgage payments had climbed to 4.11%  last month, from 3.92% at the end of June.