Northern Rock borrowers failing to repay loans

27 August 2008
The number of mortgage borrowers failing to meet repayments on their loans has risen to a record level, with the highest default numbers among Northern Rock customers.

A report from Standard & Poor’s, a rating agency, examining trends among mortgage loans sold on by banks to investors – a process known as securitisation – found that affordability pressures and a lack of refinancing options are preventing people from being able to meet their mortgage payments.

Although the majority of securitisation vehicles saw increases in the number of borrowers missing repayments, the report identifies a “substantial increase” among Northern Rock borrowers.

In fact, the number of customers of the nationalised bank that are falling three months behind on their payments is rising at a faster rate than customers of other banks, including mortgage giant Halifax.

There is now concern that the taxpayer may have to meet the cost of these delinquent borrowers, as Northern Rock remains in public ownership.

Northern Rock’s securitisaton vehicle – known as Granite – suffered nearly a 75% increase in defaults between March and June this year, with repossessions also increasing noticeably. This is despite Granite reducing the mortgages in holds from £53.4 billion in October 2007 to £40 billion.

Standard & Poor’s estimates that Granite accounted for one in every 13 properties repossessed in the UK in the first half of this year.

In the first three months of 2008, 134 mortgaged properties within the Granite portfolio were repossessed, jumping to 353 in the second quarter. In comparison, Halifax’s securitisation vehicle only saw 77 repossessions during the second quarter, while Abbey’s were lower at just 52.

The latest repossession data from the Council of Mortgage Lenders shows there were around 18,900 repossessions in the first half of 2008.

Referring to the rise in default levels across the mortgage market as a whole, Kat Livesey, credit analyst at Standard & Poor’s, said: “With no sign of credit conditions easing and house prices continuing to fall, we expect delinquencies to continue rising and losses to increase over the coming quarters".

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