Print friendly version 14 Sep 2007

US sub-prime crisis hits UK mortgage lender, Northern Rock

The first major sign that the US sub-prime mortgage crisis will hit UK borrowers came today, as the Bank of England offered emergency funding to mortgage lender Northern Rock.

The Chancellor of the Exchequer and the Bank of England today authorised emergency credit to Northern Rock, Britain's biggest mortgage lender in the first half of the year, to "help it fund its operations during the current period of turbulence in financial markets".

With the collapse of the sub-prime market in the US hitting investor confidence, Northern Rock has struggled to raise money from banks and other financial institutions to fund its mortgage lending.

Northern Rock chief executive Adam Applegarth said: "We are seeing extreme conditions in global liquidity, which have impacted on world markets. As a result, we have taken prudent action to rein back our lending until markets normalise."

Northern Rock share prices have tumbled by 24 per cent since the loan was announced, but industry experts are warning consumers not to overreact.

Michael Coogan, director general of the Council of Mortgage Lenders, said consumers need to understand that the problem for lenders generally at the moment is in raising funds, rather than irresponsible lending.

He added: "The Bank of England would not have approved the loan to Northern Rock if it had concerns about the lender's own business."

Similarly, Jonathan Cornell, managing director at Hamptons Mortgages said that the Bank of England loan demonstrated "a very high degree of faith in the lender and that its problems are only considered short term".

Meanwhile Angela Knight, chief executive of the British Bankers Association reassured Northern Rock's customers that they can be "absolutely confident that they have got their money with, or they have borrowed from, a very sound financial institution".

Related news:

18th Sept 2007 - Are you a Northern Rock borrower?

18th Sept 2007 - Where next for Northern Rock?

18th Sept 2007 - Bank shares plummet as the Northern Rock saga continues

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