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Rock to revive mortgage lending Rock to revive mortgage lending
(about 1 hour later)
Northern Rock is to revive its mortgage business with up to £14bn in new loans by 2011, it has been announced. Northern Rock is to revive its mortgage lending with extra cash from the taxpayer, it has been announced.
It is part of government plans to boost lending and reverses its earlier policy to wind down the bank's loans. It is part of government plans to boost lending generally, and reverses its earlier policy of winding down the bank's loans.
The bank also said senior staff would get no cash bonuses for 2008 and 2009, apart from contractual entitlements, and no pay rise in 2009. The bank revealed that it would report a loss of £1.4bn for 2008.
Northern Rock added that frontline staff, such as bank tellers, would get a 10% bonus for 2008. And it said senior staff would get no cash bonuses for 2008 or 2009, apart from contractual entitlements, and have their pay frozen at 2008 levels.
More lending
Chancellor Alistair Darling said the new plan was one of a series of measures being taken to rebuild the banking system.
FROM THE TODAY PROGRAMME Government pulls lending leversFROM THE TODAY PROGRAMME Government pulls lending levers
In addition, junior management will receive a bonus for 2008, but it will be deferred until 2010 and can be clawed back if performance criteria are not met. "It's repaid about £18bn of the loan the government made, and I said in January this year that because of the problems the mortgage market faced, instead of looking to wind down its business, it would be better for Northern Rock to maintain lending," he said.
He added that some mortgages would be lent at up to 90% of the value of the property being bought.
"Mortgage redemptions funded nearly all the £18bn of the loan that Northern Rock repaid to the government," said Michael Coogan of the Council of Mortgage Lenders.
Bonus policy
Frontline staff at Northern Rock, such as bank tellers, will receive bonuses worth up to 10% of their salaries for 2008.
That is because they helped the bank achieve its target of repaying a large part of the government loan taken on prior to its nationalisation early last year.
In addition, junior management will receive a bonus for 2008, but this will be deferred until 2010 and can be clawed back if performance criteria are not met.
Northern Rock said the frontline and junior management bonuses covered about 4,400 workers with an average annual salary of about £21,000.Northern Rock said the frontline and junior management bonuses covered about 4,400 workers with an average annual salary of about £21,000.
The bank also said that "senior individuals who are important to the company's future" would also receive a deferred bonus, payable in 2010 if certain criteria are met.The bank also said that "senior individuals who are important to the company's future" would also receive a deferred bonus, payable in 2010 if certain criteria are met.
Change of policy Existing customers
The Newcastle-based bank is expected to take on about £5bn in new mortgages this year and up to £9bn from 2010. The Newcastle-based bank will now embark on a radical change in its lending policy.
Northern Rock's new mortgage lending will be financed with money from new deposits, repayments on existing loans and more government money.
The revival of the bank's mortgage business is part of wider plans to restructure the nationalised lender and follows a government decision to reverse the wind-down of its loans.
Chancellor Alistair Darling said it was one of a series of measures being taken to rebuild the banking system.
An extra £5bn from Northern Rock this year, instead of a minus number, will be very significant Ray Boulger, John Charcol mortgage brokersAn extra £5bn from Northern Rock this year, instead of a minus number, will be very significant Ray Boulger, John Charcol mortgage brokers
"It's repaid about £18bn of the loan the government made, and I said in January this year that because of the problems the mortgage market faced, instead of looking to wind down its business, it would be better for Northern Rock to maintain lending." Instead of running down its mortgage book, it aims to lend an extra £5bn in new mortgages this year and up to £9bn from 2010.
He added that some mortgages would be lent at up to 90% of the value of the property being bought. To help fund this the Treasury will provide an extra £10bn in taxpayers money to the bank.
'Chaos' The Northern Rock will stop its current policy of encouraging existing customers to redeem their mortgages and move to other lenders.
Ray Boulger, of mortgage brokers John Charcol, said the plan was very welcome. This means they will now be able to apply for some of the favourable deals which have been on offer to new customers only.
"This is good news for customers of Northern Rock and for consumers generally, who will benefit from an increase in mortgage availability," said the bank.
"The new lending proposition means that the company's existing mortgage customers will not be actively encouraged to leave when their mortgage deal matures and they will have more choice," it added.
Welcome
Ray Boulger, of mortgage brokers John Charcol, said the new plan was very welcome.
FROM THE TODAY PROGRAMME More from Today programme
"Last year net lending in the mortgage market by all lenders was £40bn," he said."Last year net lending in the mortgage market by all lenders was £40bn," he said.
"This year the Council of Mortgage Lenders forecast that could be minus £25bn, and that probably assumed Northern Rock would be paying back some more of this loan to the bank of England, so an extra £5bn from Northern Rock this year, instead of a minus number, will be very significant.""This year the Council of Mortgage Lenders forecast that could be minus £25bn, and that probably assumed Northern Rock would be paying back some more of this loan to the bank of England, so an extra £5bn from Northern Rock this year, instead of a minus number, will be very significant."
With the value of all new mortgages currently averaging £112,000, an extra £5bn of lending would be the equivalent of about 44,600 averaged-sized home loans per year. With the value of all new mortgages currently averaging £112,000, an extra £5bn of lending would amount to about 44,600 averaged-sized home loans per year.
That would be roughly equivalent to the number that was lent each month during 2008. That would be roughly equivalent to the number that were lent each month last year by all lenders in the UK.
But Greg Hands, shadow treasury minister, told the BBC the reversal of policy showed the "chaos" at the heart of government decision-making. However the bank's financial problems are not over.
"We've been calling on the government for some time to free up credit in the economy and to make sure credit flows," he said. As well as the huge loss for last year, it revealed that arrears among its mortgage borrowers have risen rapidly.
"However, for Northern Rock it is a bit of a volte-face because until now Northern Rock had been under orders to wind up its mortgage operation and essentially to close down business," he added. Nearly 3% of these borrowers are now in arrears by more than three months, up from less than 2% last September.
The bank said the problem lay particularly with people who had been given 125% loans under its notorious "Together" mortgage policy.
And it warned that it would still be "significantly loss making" this year.
RestructuringRestructuring
A change in the nationalised banks' lending policy became a potential option last month when the government announced steps to revitalise the moribund mortgage market. A change in the nationalised banks' lending policy first became apparent last month when the government announced steps to revitalise the moribund mortgage market.
FROM THE TODAY PROGRAMME More from Today programme
Northern Rock collapsed in 2007 after a run on savers' deposits when it emerged it had sought government help.Northern Rock collapsed in 2007 after a run on savers' deposits when it emerged it had sought government help.
When the bank was nationalised last year it pledged to reduce the amount of state aid it would borrow.When the bank was nationalised last year it pledged to reduce the amount of state aid it would borrow.
However, in January this year, the lender was given more time to pay back its £27bn government loan as part of broader government efforts to boost lending, which it is hoped will aid economic recovery.However, in January this year, the lender was given more time to pay back its £27bn government loan as part of broader government efforts to boost lending, which it is hoped will aid economic recovery.
Previously, the bank had been encouraging customers to re-mortgage with other lenders so it could quickly pay off the loan, which stood at £9bn at the end of December, but this policy will now be relaxed. Previously, the bank had been encouraging customers to re-mortgage with other lenders so it could quickly pay off the loan, but this policy is now being stopped.
New policy Greg Hands, shadow treasury minister, told the BBC the reversal of policy showed the "chaos" at the heart of government decision-making.
To help the bank lend, the firm is to be restructured, with new mortgages and existing mortgages managed separately. "We've been calling on the government for some time to free up credit in the economy and to make sure credit flows," he said.
The announcement follows suggestions by Treasury Secretary Stephen Timms that plans to inject more cash into the economy could happen "quite soon". "However, for Northern Rock it is a bit of a volte-face because until now Northern Rock had been under orders to wind up its mortgage operation and essentially to close down business," he added.
On Sunday, he told the BBC that the government and the Bank of England were in talks regarding so-called quantitative easing.
Quantitative easing effectively allows the central bank to write cheques to banks in exchange for assets.
Ministers hope this will encourage banks to lend to consumers, who will spend more, helping economic recovery.
Will these plans help you? Are you looking to take out a mortgage?Will these plans help you? Are you looking to take out a mortgage?
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