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This poisoned chalice called Northern Rock

Northern Rock released their annual report this morning, a year after their ‘temporary’ nationalisation on 22nd February 2008. The report provides some fascinating reading, and here are the headline numbers:

  • A loss of £1.4 billion, of which £900m is for loan losses and £300m for write-downs
  • The bank reduced staff by 1,300 to 4,500 through redundancies
  • Northern Rock’s customers with arrears over 3 months is up at 2.92% compared to an industry average of 1.87%
  • Arrears would have averaged 2.05% instead of 2.92%, but have been inflated by the policy of encouraging borrowers to renew mortgages with other lenders
  • Result: customers who cannot get loans elsewhere nor a renewal from Northern Rock slip into default
  • The worst defaulters are those on the Together mortgage book, which is the mortgage Northern Rock offered in the good times, and allowed buyers up to 125% of Loan-to-Value
  • Together mortgages represented about 200,000 mortgages of the 800,000 Northern Rock managed at the start of 2008
  • Northern Rock’s total mortgage lending book at the end of 2007 was £110 billion, and Together mortgages were around a quarter of that total
  • Together arrears over three months are running at 4.53% of customers
  • The bank has committed not to continue repossessions which peaked at 4,201 in September 2008 and ended the year at 3,620 – that’s still up 63% over 2007
  • 0.66% of properties are repossessed by Northern Rock, compared to an industry average is 0.34%, and the bank works with customers for an average of 15 months before repossession
  • Retail balances almost doubled through the year, and were up £9.2 billion to £19.6 billion
  • Result: the bank repaid £18 billion of the £26.9 billion loan from the UK government leaving a balance of £8.9 billion
  • The bank was only asked to repay £7 billion in 2008 by the government
  • Northern Rock’s has refused £20 billion of mortgage renewals in 2008 whilst reducing their own mortgage lending to £2.9 billion from £13 billion a year before
  • This effectively reduced mortgage flow by 30% in 2008 as the market was £108 billion in 2007 and the Rock’s lending policy reduced availability by £33 billion
  • The UK Government is pumping £9 billion into Northern Rock this year and £5 billion next year to increase mortgage lending, particularly targeting large loans of 90% of Loan-to-Value

This last line highlights that the government has probably just realised Northern Rock’s policy of not lending, getting rid of mortgage holders, encouraging deposits and paying back the government loan as fast as possible … has been the poisoned chalice in their pipe of getting the economy moving again.

p.s. whilst writing this I found a fascinating list in the Guardian of the UK’s Building Societies (read thrifts if overseas) lending policies.  Very prudent!

About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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