The biggest financial u-turn ever!
It's good news for borrowers and bad news for taxpayers as Northern Rock borrows an extra £10 billion and starts lending again.
There's a glimmer of hope on the horizon for first-time buyers and housing market bulls - and it only cost a few billion quid to put it there.
Following a £10 billion loan from the Treasury, nationalised former wreck Northern Rock has been given permission by the Chancellor to open its mortgage books to new customers and start lending again to borrowers with only 10% deposits.
The Government has also allowed Northern Rock to compete on a larger scale for all borrowers, with ?permission to take on about £5bn in new mortgages this year and up to £9bn from 2010.
Due to the perceived risks involved in lending in a falling market, most first-time buyers (with perhaps a 10% deposit) currently have to fork out twice as much as interest as borrowers with 25% deposits.
And they're the lucky ones. With mortgage lending down 49% in the past year to a 34-year low, many borrowers have trouble getting a mortgage at all.
This means very few first-time buyers have so far been able to benefit from crashing house prices and record-low interest rates.
But Northern Rock could change all that by offering competitive deals to creditworthy cash-poor borrowers. The result? First-time buyers could find property is soon more affordable than it has been in over a decade - and a boost at the bottom of the property chain could help to halt further price falls higher up.
But the move will leave the billions of pounds Northern Rock owes the taxpayer festering on its balance sheets for many more years to come.
One sharp U-turn later...
The original plan was for the Rock to pay back the £30 billion it borrowed as quickly as possible. And to meet that end, over the past year, it has been aggressively repossessing twice as many homes as other lenders, according to debt charities.
Now, the plan is for the Rock to use £18 billion it has on its books for new lending - instead of paying back the taxpayer - and to borrow an extra £10 billion from the Treasury as a loan!
It's hard to imagine a sharper U-turn. But then again, because it was under so much pressure to repay its original £30 billion debt to the taxpayer, Northern Rock estimated it would be responsible for 10% of all repossessions this year. When you consider how much taxpayers' money is being ploughed into helping homeowners facing repossession, this strategy on behalf of a nationalised lender seemed wildly inappropriate.
After all, in many cases, Northern Rock borrowers facing repossession could simply call on the taxpayer for help paying back a loan from the taxpayer. End result: staff get bonuses, borrowers suffer - and taxpayers are in many ways no better off.
A knight in shining armour
There's a certain awful symmetry about today's announcement.
Remember, this is the lender which, for a decade, lit a match under the property boom with irresponsible lending and 125% mortgage deals.
This is also the lender which, when it collapsed in August 2007, marked the start of the biggest credit crunch and the quickest property price crash we've ever seen.
How ironic that this lender could now be the savior of the British housing market, riding to the rescue of homeowners and first-time buyers in a suit of newly-minted Government armour.
Unfortunately, yet again, we're all picking up the bill....
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