Nr's Effect On Mortgage Availability.

[A.steve]

I've a question about a hypothetical situation:

Can we assume:

( A ) that the problems with rating asset backed securities will be resolved within a few months - and values transpire to be little different to estimates before the first mention of "subprime" (i.e. the most optimistic situation... bear with me...)

( B ) that Northern Rock's business model makes both it and any similar mortgage lender unprofitable... [i would expect this as, if risk is properly assessed, Northern Rock offers no value to those who would lend to it.]

What happens to those who hold mortgages with Northern Rock?

OK, well, we can assume that those with fixed terms will continue to pay someone (maybe administrators of the bank) just as they do now... but what happens when the fixed-term expires? Is the bank free to foreclose if the customer is unable to refinance - even if the customer has no problems paying at the fixed rate? Who sets the variable rate for lenders if the finance can only be acquired through the Bank of England? Would Northern Rock mortgage customers need to get their houses valued again in order to establish risk and to set a new mortgage rate?

[A.steve]

Does anyone have any analysis on the likely fallout from this?

[Its time to buy]

I think the BOE with cut base rates to ease the pain. No one wants pain.

Northern Rock has had its wrists slapped - it may reinvent itself, or be taken over at some point.

Mortgages may be harder to get but the BOE will not let the taps turned off completely.

[A.steve]

Mortgages may be harder to get but the BOE will not let the taps turned off completely.

The question I'm interested in is this:

How much harder?

I suspect that unless ~£200 billion is loaned over the next year, I'd expect our GDP to fall... It sounds, at the moment, as if central bank lending is only to avoid collapse while CP and MBS assets remain which have some value... not to further extend lending to buoy-up the value of those assets on which loans are secured. I think the central bank would need to offer closer to a trillion pounds in order to keep a steady flow of new mortgages funds. I don't see that happening.