Northern Rock – it just gets worse

In the news today, it has been announced that Northern Rock plans to reduce its mortgage exposure by 50% over the next three years.

I’m not quite sure how they plan do this, but the obvious way would seem to make its products more unattractive, so expect all those special offers, discounts and other goodies to disappear rapidly, and their mortgage rate to go north at a rate of knots.

So one of two things will happen to poor old joe punter: -

1/ He’s stay with Northern Rock and his mortgage will be on a punitive rate
2/ He need to transfer his mortgage to another provider.

However option 2 is not as simple as it seems. Northern Rock has one of the biggest mortgage books in the country, and trying to shift all this business at a time when mortgage providers are being much more, er, selective with who they lend money to is going to be tough.

I’m not sure what percentage of their book is the infamous 125% loan to value deals, but those on these deals and others who have mortgages of greater than 90% of the value of their property are going to have a tough time finding another provider willing to give them a decent rate or any rate at all. It is also possible that these transfers may require insurance cover is purchased to cover the top slice of the loan.

If I was another bank, I’d be picking off all those tasty transfers with plenty of equity in the property (at the most profitable rate of course) and leaving Northern Rock with all the risky business.

And remember we, the tax payers, are now the owners of the Northern Rock.

Posted By: KentonCanary, Apr 1, 08:46:09