Northern Rock still find themselves in a hard place

Treasury owned Northern Rock continue to dazzle the financial world with their prediction that 2009 will be a year that “substantial loss-making” will occur for the company, largely put down to providing for the vast portfolio of bad debt that the building society has accumulated. A spokesman for the company announced on Thursday that more than 3.5% of all of their residential mortgage loans were now sitting in arrears for more than three months, a worrying situation and one that showed an increase of 25% from the previous quarter. The company spokesman them went on to throw the concerned shareholders, largely the UK public, a bone by adding that the company were observing “tentative” signs of improvement in the percentage of clients who were managing to stay out of arrears or at least staying with a framework of three months or less.
Northern Rock, rescued from the brink of bankruptcy in early 2008 continue to cause concern for the Treasury, and yesterday figures will only help in increasing fears that the bank may not be capable of getting itself back on an even keel, despite all the Government efforts to make it happen. That fact that the bank’s long term arrears statistics is almost two and a half times the national average shows that all is not well with the Newcastle based bank.

The bank’s consistent failure to adhere to government directives requiring it to reduce its standard variable rate in line with the bank rate cuts is especially problematic. This is evidenced by the fact that when the bank rate was slashed from 5% to 0.5%, Northern Rocks lending rates stayed at 4.79%, among the highest in the entire UK.

This may have been a ploy to drive some of Northern Rock’s problematic client base to attempt to remortgage elsewhere. However it has proved to be largely unsuccessful, as many of them are now sitting on properties with a real narrow if not negative equity.

On a slightly more positive note, came the news that Northern Rock’s stock of unsold repossessed properties has fallen, down from 420 units from 3,620 at the end of the year to 3,200 at end March 2009

Gross mortgage lending at Northern Rock, for the first quarter of 2009 came to £550m. The bank also hastened to point out a dramatic increase in equity ratios, with the average ratio of new mortgages carrying an average equity of 48%.

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Tags: British Economy, Money Management, Mortgage, Mortgages, Northern Rock, Recession