Northern Rock reveals performance
The 100% guarantee offered to Northern Rock savers led to a whopping £3 billion increase in deposits between June and September, as savers sought out safe havens from the banking crisis.
Northern Rock saw its inflow of savings increase dramatically in September, an ironic reversal of fortunes from the same month last year when it experienced a run of panicked savers. As a result, Northern Rock was forced to pull a chunk of its savings range, as the terms of its nationalisation forbid it from taking unfair advantage of its 100% guarantee and limit its market share to just 1.5%.
The bank now has £17.2 billion of money stored in its coffers, of which £15.5 billion is UK retail deposits. It says it will “continue to monitor the situation” and may well close its doors to all new savers if need be.
On the mortgage front, the bank’s performance is less impressive. Gross residential mortgage lending for the nine months to 30 September 2008 was £2.4 billion, up slightly from the previous six months but well below its pre-credit crunch levels. Northern Rock has previously said it intends to shrink its mortgage book in order to create a more modest, prudent bank and to pave the way for its return to private ownership.
The number of mortgage borrowers failing to pay back their mortgages has also risen, with arrears over three months standing at 1.87%, up from 1.18% at the end of June 2008. The number of 100% mortgage borrowers missing payments increased at faster levels than those with deposits, and also accounted for the majority of property possessions.
In total, 4,201 properties had been repossessed by Northern Rock at the end of September, up from 3,710 at the end of June.
Earlier this week, Northern Rock cut its Standard Variable Rate by 0.15% - despite the Bank of England base rate falling by 0.5%.
Andrew Hagger, of moneynet.co.uk, says: "When you realise that the strategy of the nationalised Northern Rock is to reduce its mortgage book, it is unpalatable moves such as this that may be sufficient to encourage a few more borrowers to look elsewhere for a mortgage.
"Unfortunately those with a loan to value ratio of 90% plus are unlikely to find a better deal elsewhere at present and will have no option but to carry on sitting on the books of Northern Rock and paying a high price just to keep a roof over their heads."
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
“Arrears” tend to be associated with debt. If you fall behind and miss payments on any outstanding debt, the amount you failed to pay is an arrear – the amount accrued from the date on which the first missed payment was due.