Northern Rock borrowers defaulting on loans
Northern Rock has reported a 25% jump in the number of borrowers defaulting on their mortgage repayments.
People who have failed to pay their mortgage for three months or more currently make up 3.67% of the bank’s total loan book, figures for the first quarter of 2009 reveal. This is a 25% jump from 2.92% seen in the previous quarter.
In contrast, figures from the Council of Mortgage Lenders show that the average arrears rate across other banks and building societies is just 1.53%.
However, Northern Rock says it has seen “tentative signs of improvement” with a reduction in the number of households less than three months in arrears. This is likely to be down to monthly mortgage repayments dropping on the back of the Bank of England's base rate cuts.
Despite this, the Newcastle-based bank says it will be “substantially loss-making” due to its bad debt provisions in the current tough conditions. It has, however, paid back another £1 billion of taxpayers' cash, taking its gross debt down to £14.6 billion.
It has also made progress with the legal and capital restructuring of the business to allow it to up its mortgage lending and position the group to go back into private hands.
Northern Rock, which was taken under the government's wing in February 2008, has committed to lending £14 billion over the next two years - £5 billion of which will be in 2009.
In the first three months of 2009, the bank issued mortgages worth £550 million, not including the planned increases in lending. It also saw a 70% surge in new applications during March after improving the competitiveness of its products. And it reports homeowners are choosing to stay with it after their discount mortgage deals have expired, with redemption rates slowing “significantly” in the first three months of 2009 and currently running at around half the average rate of 2008.
The days of the bank approving mortgages up to 125% of a property's value are long gone, though, with the average mortgage now just 48%.
Gary Hoffman, chief executive of Northern Rock, says: “The economic environment remains difficult but our trading performance in the quarter was in line with our expectations and we saw some early signs of mortgage applications increasing in March, reflecting pricing adjustments to our current product range.”
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.