Thrifty Loans

After all that’s happened it is rather surprising that Northern Rock are still offering mortgages for more than the value of the borrower’s home.

Despite its being underwritten by the UK taxpayer, the ailing bank is still marketing its Together mortgage deal in which homebuyers can borrow up to 125% of a property’s value. Such a mortgage instantly gives the borrower negative equity. In a period of uncertainty about the future of house prices, this is seen as very risky as their negative equity could easily increase.

However, it is mainly the fact that Northern Rock – in such financial difficulty – is offering these loans at all that is causing people to criticise.

Liberal Democrat peer Lord Newby has raised the issue in the House of Lords on more than one occasion. He says: “Mortgages of more than the property’s value seem particularly risky in a falling market. Mortgage brokers might claim these loans are very good for helping certain types of borrower, but I am convinced that they are not only being sold to solid borrowers.”

Newby adds about Rock offering these mortgages: “One has to ask how Northern Rock managed to grow its business so aggressively, and the answer appears to be that it was prepared to offer risky products.”

So far Lord Newby has failed to get the Government to force Northern Rock to drop these risky deals. The Treasury says that the bank must make its own commercial decisions, but Newby describes that as ‘ludicrous’.

According to the Northern Rock: “The Together mortgage remains a legitimate product that performs well and helps people on to the housing ladder.”

Northern Rock is not the only bank offering these mortgages. Other lenders doing so include supposedly risk-averse building societies that are owned by their customers. Banks are Abbey, Alliance & Leicester and Bradford & Bingley. The building societies include Newcastle and Coventry.

Lenders say the key point is whether borrowers can afford monthly repayments, something that is not related to a property’s value.