Monday, February 11, 2008

They’re still chucking money at people

Northern Rock row over 125% loans

Beleaguered Northern Rock faces growing criticism for continuing to offer mortgages worth more than the value of borrowers' homes. The bank, which kept afloat only because it is underwritten by the taxpayer, still markets its Together mortgage deal, where homebuyers can borrow up to 125% of a property's price. Borrowers signing up to such loans instantly fall into negative equity. A Rock spokesman said: 'The Together mortgage is a legitimate product that performs well and helps people on to the housing ladder.'

Posted by little professor @ 09:38 AM (1216 views)
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12 thoughts on “They’re still chucking money at people

  • Totally indicative of the kinds of business practices that created this mess in the first place…….

    This BS should have been left to go to the wall.

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  • The Treasury Committee published a scathing attack on the management of Northern Rock, but reserved most of its venom for the Financial Services Authority. Committee chairman John McFall said that the directors of Northern Rock were the principal authors of the difficulties that the company has faced since August 2007. He also stated that “The directors pursued a reckless business model which was excessively reliant on wholesale funding,”

    They are effectively still persuing the same business model by offering the Together mortgage range (95% secured + 30% unsecured) – am I missing something here?

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  • Northern Rock, desperately clinging on at any cost, rather like Brown and Darling. For God’s sake go.

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  • Outrageous !

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  • I would have thought that the run on NR would have resulted in some caution by lenders. Alas not.

    I think it’s time to appoint an administrator for NR (as the government did for Metronet). There are 2 reasons why this hasn’t happened:

    1) There is a stigma of Nationalisation that New Labour is keen to avoid.

    2) The resulting “slim down” of staff will affect a number of Labour constituencies.

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  • and if it goes wrong, Gordon can slip them a few more billions

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  • This is no surprise. This is what happens if the repercussions of their lax lending are escaped by a taxpayer bailout. THEY HAVEN’T LEARNED ANYTHING!

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  • From todays mortgagestrategy online publication –

    Some 2,000 jobs could be slashed at Northern Rock regardless of whether it is nationalised, claims a source close to the bank.
    The source believes redundancies are “inevitable,” due to constraints on how the bidders – Virgin and the NR board itself – use Goldman Sachs’ complex funding package to repay the government.The source adds: “Either way, the business will have to be scaled down and that means job cuts.”Jayne-Anne Gadhia, chief executive of Virgin Money, told BBC Radio 4 last week that Virgin could not rule out redundancies under its plan. A spokesman for Virgin says: “All the (redundancy) figures mentioned have been pure speculation and it is far too early to say what NR will look like in future.”There are stringent conditions on how bidders can use the funding plan, which involves turning the Bank of England’s reported £25bn debt into government-backed bonds to repay the Treasury.Virgin has already altered its plan because of the conditions. The Treasury has warned Virgin that repaying the government will put huge pressure on its growth plans for NR.
    Reports also emerged last week that NR may cut its £113bn mortgage book in half, under its in-house rescue plan.It is also believed that NR’s current funding ratio, of 75% from wholesale markets and 25% from retail deposits, would be switched to 50% from each under the board’s own proposal.NR declined to comment on job losses or its own proposal.Weekend reports claimed that Royal Bank of Scotland, Barclays and Citigroup have offered to securitise half the Bank of England’s loan to NR.The Sunday Telegraph reported the three banks recently approached the Treasury, offering to securitise £12.5bn of NR’s mortgage assets in the market.The newspaper claimed the plan is designed as an alternative to Goldman Sachs’ scheme.

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  • waitingfor hpc says:

    disgusting! i wish we could sue the govt? why are the other banks not doing so?

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  • NR are caught between a rock and a hard place. If they continue as before they look stupid. If they don’t they will not be able to offer remortgages to all those Together product holders, who may then lose their homes – even worse for them.

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  • >> ‘The Together mortgage is a legitimate product that performs well …………’

    A bit like a chimp in a circus. The fact that they felt it necessary to state it as a, “legitimate product” worries me.

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  • crash bandicoot says:

    “The Together mortgage is a legitimate product that performs well”

    How is that performance measured? In sales volume? Then it is bound to perform well. “Who would like loads more money than anyone else will lend you?” “Form an orderly queue – just make it inside the bank this time”. If measured in terms of how much good it has done for the company then it’s performance is questionable. It looks like they are still confusing market share with profitability and that’s what’s going to keep them down even longer than the credit markets.

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