Northern Rock Mortgage Borrowers Should Not Expect Government’s Support

According to the statement made yesterday by the House of Commons Treasury Select Committee, thousands of mortgage borrowers of the Northern Rock bank will have few or no financial options left as they will stay with the “bad bank” – Northern Rock Asset Management.
An average of 85% of Northern Rock borrowers, or 476,000 people, will stay with the bank that is slowly collapsing. There mortgage borrowers will be transferred to the “bad bank” as they will be unlikely to remortgage with any other lender. Meanwhile, Northern Rock Asset Management  is not expected to offer any new mortgage deals to its existing borrowers.
Borrowers, who will be transferred to Northern Rock Asset Management, are mainly those who earlier took out Northern Rock’s “Together” mortgage loan, which offered up to 125% LTV. At the moment, the vast majority of “Together” deal holders are deep in negative equity, meaning that their property is worth less than their debt, and have no chances to remortgage.
Let us remind that according to the Government’s plans, Northern Rock should be split into 2 parts – the “good” and the “bad”; the “good” part is to be sold to the private sector.
Interestingly, the Government’s plan does not include any support measures to the mortgage borrowers of the “bad” Northern Rock Asset Management. At least, no indication of such plans was present during the hearing of the committee.
Current Northern Rock mortgage borrowers, who are lucky enough to have good credit histories due to low LTV’s, might be able to remortgage with other lenders at the end of their current deal, while those borrowers in negative equity will have to stay with Northern Rock Asset Management’s SVR offered at 4.79%.
In addition to a large number of borrowers in negative equity, approximately 10% of loans that are to be transferred to Northern Rock Asset Management, are in arrears.