Northern Rock Launch a New Range of Mortgages

By April 20, 2009Articles

On the 23rd February 2009, Northern Rock announced that it was to increase its mortgage lending capacity within the market, following close consultation with the Government. It will launch a whole new range of mortgages for both first-time buyers and those remortgaging.

This means that existing Northern Rock customers will have greater choice when their current mortgage deal comes to an end, rather than being encouraged to look exclusively outside of Northern Rock. Indeed, the increase in availability will surely benefit both those seeking to purchase a home and those looking to remortgage.

Gary Hoffman, Chief Executive of the bank, said of the move: ‘Since entering public ownership, we have concentrated on reducing the balance sheet through a mortgage redemption programme….only writing a limited amount of new lending. We can now return to the mortgage market on a commercial basis, and this represents an important step in the ongoing rehabilitation of the company, returning to financial viability and ultimately returning to the private sector’.

Northern Rock went into public ownership in February 2008, and from that point mortgage lending was cut right back and all effort concentrated on repaying loans worth billions to the treasury. However, £14 billion of the money loaned by the Government will be used to generate new mortgage lending over the next two years; £5 billion this year and £9 billion throughout 2010.

For Matthew Sinclair, Research Director of the Taxpayers’ Alliance, the Rock’s new range of mortgages should raise cause for concern. He says:

“Building Northern Rock up again as a big lender while it is in the state’s hands is highly troubling. There is a serious risk that their access to taxpayer financing could lead to highly unfair competition against the remaining private sector operators in this market, and make things worse for the sector.

Beyond that, the current conditions show quite how risky the mortgage loans business is. Very few private investors are willing to put their money into that market, so why is the Government happy to do so on our behalf?”

In fairness the mortgages, available from 25th February 2009, do encourage responsible lending and are competitively priced, but unfortunately they are not focused on first-time buyers with little or no deposit: Gordon Brown wants to banish 100% mortgages altogether, and with the new range of mortgages, no more than 85% of a property’s value will be loaned – before, the Rock offered 125% mortgages.

However, 85% is competitive, as many other lenders typically require a 20% deposit: this will aid both first-time buyers and those re-mortgagors whose property has perhaps fallen in value and is now in the 90% LTV bracket.

The new residential mortgage range from Northern Rock comes with free basic valuation and free standard legal work, and customers are offered a choice of fixed-rate mortgages over various terms (2, 5, and 10 years). In addition, there are 3 LTV (loan-to-value) tiers – 65%, 75% and 85%.

Customers can choose to pay a fixed fee of £995 or take the ‘fee saver’ option (free valuation and legal work), and the interest rate they pay will differ accordingly – see tables below for details:

2 year flexible fixed rate mortgage:

LTV

FEE PAYING

FEE SAVER

65%

3.89%

4.49%

75%

4.09%

4.69%

85%

6.29%

6.79%

5 year flexible fixed rate mortgage:

LTV

FEE PAYING

FEE SAVER

65%

4.69%

5.09%

75%

4.89%

5.29%

85%

6.69%

7.09%

10 year flexible fixed rate mortgage:

LTV

FEE SAVER OPTION

65%

5.59%

75%

5.89%

These mortgage rates are very competitive; in fact, the 2 year fixed rate at 3.89% is currently named as one of the best buys on the market. However, a 65% LTV is required, discounting many homeowners and first-time buyers.

These mortgage rates are very competitive; in fact, the 2 year fixed rate at 3.89% is currently named as one of the best buys on the market. However, a 65% LTV is required, discounting many homeowners and first-time buyers.

For these consumers, the 85% LTV tier may be an only option – the fact is that people who could not afford to get on the property ladder or to move now can and rates of 6.29%-7.09% are not too bad at all, being broadly in line with other lenders.

All Northern Rock mortgages (with the exception of the lifetime ‘equity release’ mortgage) offer full flexibility, including the possibility of overpaying.  For more details, visit the Northern Rock website.

We would like to hear from anyone who had any experience with Northern Rock mortgages.