Loans and Finance

Loans and Finance


News and information about loans, money, debt, finance and business issues.
Powered by

Sunday, September 16, 2007

Northern Rock

Northern Rock two years ago was the only bank to offer mortgages of up to 125% of a property's value (or 95% of value plus up to £30K) and up to six times borrowers' income.

Is it possible that, by being so "generous" with its loans, it has brought this mess that it is in upon itself?

The Telegraph takes the view that Northern Rock was doomed:

"No other lender has been more aggressive in growing its share of the ever-more inflated UK housing market.

No other bank has gorged itself on cheap debt to the same extent in order to maintain its relentless growth profile.

No other bank has been so dependent on short-term cash from the money markets to keep funding its business model.

There has always been a school of thought that believed Northern Rock was an accident waiting to happen

The Sunday Telegraph quoted a source close to Northern Rock as saying if its shares fall heavily again on Monday, then a fast break-up and sale of its assets "looks inevitable".

In other words, Northern Rock will cease to exist and be taken over.

This should not adversely affect those with savings in the bank (note: had the Bank of England not stepped in, then the position of savers would be entirely different and they could face losing everything). However, it may well adversely affect the mortgage market and hence house prices.

In case you are wondering who will end up footing the bill for the Bank of England bail out of Northern Rock; it will be us, the taxpayers.

No comments:

Post a Comment