Thrifty Loans

The mortgage book of Northern Rock is already being reduced ahead of its forthcoming nationalisation.

It was predicted by Ray Boulger, of mortgage brokers John Charcol, that Rock’s mortgage book would be slashed by 50% in the next couple of years, and he said that rates have been put up already to discourage people taking out new mortgages.

At the same time it has been speculated that savers would probably choose better rates over higher safety when choosing their savings schemes.

As the Government puts Northern Rock into “temporary” public ownership into practice ahead of hoping to find a long-term buyer, it has been widely predicted that the business will re-structured to reduce the mortgage book, and cut the number of branches and staff.

Mr Boulger said that its rates were 1% to 1.5% higher on average than most other lenders. “The key point is the action the management have taken over the past few months. It was a lot of what was necessary to downsize the business,” he said.

His estimate is that around six out of every ten customers coming of fixed Northern Rock rate have decided not to go back already. That means that Northern Rock’s share of the mortgage market has already shrunk, and will continue to shrink further.

Northern Rock has been criticised in the past few days for still offering 125% mortgages, but it is thought unlikely that the newly nationalised bank will remain in that market for long.

A reduction in the Northern Rock mortgage book will bring in some redemption money which will assist it with paying back its loan from the government – and the taxpayer.

The bad news for mortgage consumers is that even with one bank putting up its mortgage rates, other players in the same market will consider the opportunity to do the same.