Despite Northern Rock coming under public ownership in February 2008, the number of customers in arrears with their mortgage or those having their homes repossessed rocketed during 2008: by the end of the year, 17,264 customers had at least 3 months’ of arrears, compared to 3,500 at the start of 2008 – a huge increase of almost 14,000 homeowners, or 3% of total customers.
A year ago, prior to nationalisation of the bank, this figure stood at just 0.45%.
Northern Rock have cited the current economic climate as the main reason for the shocking figures above, but it cannot be ignored that the Rock’s ‘Together’ mortgage, which allowed customers to borrow up to 125% of the value of their home, has played a significant part in the arrears turmoil.
Figures released by Northern Rock at the beginning of March 2009 showed that over 4.5% of customers with ‘Together’ mortgages were more than 3 months in arrears – up almost 1% on the previous year and more than twice the industry average of 1.88%. Although Northern Rock withdrew Together mortgages from the market over 12 months ago, the future looks very bleak for some existing customers with this product.
When Northern Rock was nationalised, the Government promised that it would be sympathetic towards customers in arrears with their mortgage, and that it would wait at least 6 months before beginning repossession proceedings. However, it has been revealed that, by the end of 2008, the bank held 3,620 repossessed properties, up 63% on the previous year.
They bank has thus been accused by several charities of using ‘aggressive’ tactics to seize back homes, but Chief Executive Gary Hoffman has said that repossessions are ‘an unfortunate effect of the current ‘external economic backdrop’ and that they will continue to work closely with affected customers to keep enforced possessions to a minimum’.
At the end of 2007, figures showed that Granite (the securitisation company set up by Northern Rock in 2001) had lost £10.2 million pounds through repossession since its inception, yet by the end of December 2008, the figure had risen to almost £46 million – a huge increase of 350%. Northern Rock confirmed that they had total losses of almost £1.4 billion for 2008, largely due to bad loans, yet they have recently announced £14 billion of new mortgage lending (maximum LTV 85%).
With the economy in freefall and more repossessions likely, it looks like Northern Rock will incur further losses, meaning that it will remain under state control for much longer than expected – the Government hoped the loan would be paid off by 2010, but in reality it could take several years more.
Despite all this, Northern Rock plan to award large bonuses to some 500 executives, creating widespread anger. Only last week, the Prime Minister stated that bankers associated with any losses should not receive a bonus.
However, Northern Rock has justified the bonuses by saying they are paid for financial performance and customer satisfaction. Senior executives did not receive cash bonuses for 2008 or 2009 and have had their pay frozen, along with the promise of deferred payments. Several thousand employees did receive a total of £9.2 million in bonuses in 2008, while a few hundred junior managers are also eligible for deferred bonuses (thought to be paid in 2010).
For those Northern Rock customers living with the threat of repossession, this must seem like a real smack in the teeth.