Northern Rock deal smells fishy to me

6 June 2008
Am I the only person with an uneasy feeling about the Northern Rock and Lloyds TSB tie-up?

While I am pleased Northern Rock seems to be taking action to help those mortgage borrowers who it plans to “phase out” when their fixed deals expire, the commercial arrangement with Lloyds TSB that it unveiled on 5 June (the same day as the Bank of England interest rate decision, a coincidence I am sure) was not quite what I had in mind.

For one, the first port of call for anyone reviewing their mortgage should always be a whole of market mortgage broker. Yes, there has been an issue of late with lenders offering slightly better rates through their branches. But at the end of the day, mortgage brokers can offer you expert advice about all the deals on the market, the pros and cons of picking, for example, a product with a low fee but higher interest rate, and can also help you make an application quickly to improve your chances of getting an offer before a product is pulled or repriced.

Northern Rock says it will make it clear to its customers that they don’t have to go to Lloyds TSB, that they can seek advice from a broker or do their own research. But if I was a Rock customer facing the prospect of having to pay its standard variable rate or find a deal elsewhere, I would probably grab the first product offered to me – even if it wasn’t the best one out there.

The tie-up between Northern Rock and Lloyds TSB smacks of commercial arrangements being put before treating customers fairly. Does Ron Sandler, the man brought on board to run the Rock as a nationalised bank, really believe that Lloyds TSB is the best mortgage lender out there for its unwanted customers? Or is it simply paying the best commission for referrals?

It’s impossible to say, because Northern Rock has refused to disclose the commercial nature of the deal. And that sort of secrecy always makes me suspicious. After all, we all know Northern Rock is getting money off Lloyds TSB so why not be completely honest and admit how much money?

Lloyds TSB has yet to unveil the products it will offer to Northern Rock customers. And in July when it does, I may well stand corrected.

The bank could be on the cusp of launching some of the most attractive, competitive deals around that will dazzle the market with their brilliantness. It could be on the eve of offering a true lifeline to discarded Northern Rock customers, one so generous that it blows every other mortgage on the market out of the water.

But considering that Lloyds TSB knows full well the panic that must be going through the heads of Rock’s mortgage customers, I very much doubt it.