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| Rock to revive mortgage lending | Rock to revive mortgage lending |
| (30 minutes later) | |
| Northern Rock is to revive its mortgage lending with extra cash from the taxpayer, 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 generally, and reverses its earlier policy of winding 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 revealed that it would report a loss of £1.4bn for 2008. | The bank revealed that it would report a loss of £1.4bn 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. | 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 | More lending |
| Chancellor Alistair Darling said the new plan was one of a series of measures being taken to rebuild the banking system. | Chancellor Alistair Darling said the new plan was one of a series of measures being taken to rebuild the banking system. |
| "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. | "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. |
| FROM THE TODAY PROGRAMME Government pulls lending levers | |
| He added that some mortgages would be lent at up to 90% of the value of the property being bought. | He added that some mortgages would be lent at up to 90% of the value of the property being bought. |
| Ray Boulger, of mortgage brokers John Charcol, said the new plan was very welcome. | |
| "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." | |
| Bonus policy | Bonus policy |
| While senior staff won't get bonuses, 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. | 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. | 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. |
| Existing customers | Existing customers |
| The Newcastle-based bank will now embark on a radical change in its lending policy. | The Newcastle-based bank will now embark on a radical change in its lending policy. |
| An extra £5bn from Northern Rock this year, instead of a minus number, will be very significant Ray Boulger, John Charcol mortgage brokers | An extra £5bn from Northern Rock this year, instead of a minus number, will be very significant Ray Boulger, John Charcol mortgage brokers |
| 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. | 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. |
| To help fund this the Treasury will provide an extra £10bn in taxpayers money to the bank. | To help fund this the Treasury will provide an extra £10bn in taxpayers money to the bank. |
| The Northern Rock will stop its current policy of encouraging existing customers to redeem their mortgages and move to other lenders. | The Northern Rock will stop its current policy of encouraging existing customers to redeem their mortgages and move to other lenders. |
| 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 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. | "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. | "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 | Welcome |
| "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. | |
| FROM THE TODAY PROGRAMME More from Today programme | FROM THE TODAY PROGRAMME More from Today programme |
| "This was £18 billion that had to be absorbed by the rest of the other mortgage lenders. | |
| "By removing this market pressure, other lenders as well as Northern Rock should experience an increased capacity to lend to other borrowers," he added. | |
| 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. | 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 were lent each month last year by all lenders in the UK. | That would be roughly equivalent to the number that were lent each month last year by all lenders in the UK. |
| However the bank's financial problems are not over. | However the bank's financial problems are not over. |
| As well as the huge loss for last year, it revealed that arrears among its mortgage borrowers have risen rapidly. | As well as the huge loss for last year, it revealed that arrears among its mortgage borrowers have risen rapidly. |
| Nearly 3% of these borrowers are now in arrears by more than three months, up from less than 2% last September. | 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. | 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. | And it warned that it would still be "significantly loss making" this year. |
| Restructuring | Restructuring |
| A change in the nationalised banks' lending policy first became apparent 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. |
| 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, but this policy is now being stopped. | 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. |
| Greg Hands, shadow treasury minister, told the BBC the reversal of policy showed the "chaos" at the heart of government decision-making. | Greg Hands, shadow treasury minister, told the BBC the reversal of policy showed the "chaos" at the heart of government decision-making. |
| "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. | "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. |
| "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. | "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. |
| 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? |
| Send your comments using the post form below. | Send your comments using the post form below. |
| In most cases a selection of your comments will be published, displaying your name and location unless you state otherwise in the box below. | In most cases a selection of your comments will be published, displaying your name and location unless you state otherwise in the box below. |