Why I Blame Northern Rock

by Donna Ferguson on 17 October 2008  |  28 comments
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Northern Rock has a lot to answer for, says Donna Werbner.

Who’s to blame for the credit crunch? In our recent On The Money video on this topic, some Fools blamed the banks, some blamed the Government– and some blamed the borrowers.

Northern Rock, it seems to me, is like a Venn diagram incorporating all three. The lonely hearts ad could have read: Irresponsible bank, backed by irresponsible Government, seeks irresponsible borrowers for credit-fuelled boom and debt-fuelled bust.

Sounds like fun, doesn’t it? And it was so easy, at the time. After all, house prices only ever go up, so what could possibly be wrong with a 125% ‘Together’ mortgage, where you borrow 100% of the value of the property - and then another 25%, on top?

Now, it seems, many Northern Rock borrowers are paying the price. According to debt charity Credit Action, Northern Rock is twice as likely as other lenders to repossess a home if borrowers fall behind with their mortgage payments.

In September, the lender had more than 4,000 homes in possession – and a whopping 75% of its repossessions are of homes owned by those 125% ‘Together’ mortgage borrowers.

To put this in perspective, in the first half of this year, just 19,000 homes were repossessed across the UK by the entire mortgage industry.

Shame on Northern Rock

Credit Action claims Northern Rock is being more aggressive than other lenders in terms of using the courts to go for repossession. Northern Rock denies this, claiming it only initiates repossessions as a last resort.

But it doesn’t deny that its priority at the moment is to pay back the taxpayer – and that means shifting as many mortgages off its books as possible.

Its Standard Variable Rate or SVR (the rate people on the Together mortgage and other products revert to at the end of their current mortgage deal) is now 2.84% above Base Rate. This is the highest SVR of any of the big lenders, and almost 1.15% above the market leader, Nationwide.

This is intended to encourage borrowers to remortgage – but there are no more 125% mortgages, so Together borrowers are stuck paying a higher rate.

So what? Don’t feel much sympathy for these borrowers? Put yourself in their shoes. Imagine you’re in debt up to your eyeballs but you’re managing to meet your monthly payments. Then suddenly, your rate increases dramatically. Your monthly payments go up by hundreds of pounds, which you cannot afford. But you can’t remortgage because, due to the credit crunch, no other lender will lend to you. You’re desperate, doing everything you can, but the situation just keeps getting worse and worse…

OK, so these borrowers were irresponsible and short-sighted and took risks they should not have taken. But the Government's regulators stood by and did nothing while Northern Rock lent people money they could not afford. So it seems to no one is entirely innocent in this sorry tale.

The Government might own Northern Rock, but it seems to me it has not yet owned up to its responsibilities to Northern Rock customers, especially as regards Northern Rock's lending strategy. Charging an uncompetitive SVR and getting a reputation for aggressive repossessions with debt charities is not the right way for Northern Rock to behave, in my opinion, however pressing the commercial concerns. 

In my opinion, the 125% Together mortgage borrowers deserve better treatment from a bank and a Government that have failed them once already.

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