Things are going from bad to worse . . .
Just thought I would throw my 2p into the Northern Rock discussion because there's always more to a story than meets the eye.
Stats out today confirm that Northern Rock's gone from bad to worse. The bank has lost £724 million in the first 6 months of 2009. Now this is not good news for the bank but I think we need to look at the reason behind it.
For over a year Northern Rock has openly encouraged its mortgage customers to leave and refinance their property with another lender. Sounds good you might say and I am one of the people who actually took advantage of this with a few of my mortgages.
Now think about the fact that the people most likely to be in a position to change to another lender are those with significant equity in their homes, clean credit and good incomes. So really what Northern Rock were saying was “would all our good clients please leave and all those who can't get mortgages elsewhere stay?”
This has meant they have paid back about £17 billion of the money they borrowed from the Government (which many experts including myself praised as a huge effort); it has at the same time left their loan book full of people with little or no equity and very sensitive to economic downturns.
And it's no surprise that this loan book is now well above the average in terms of arrears.
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They're now seeing the true cost of their decision to pay the government back so quickly — the cream of their customers are gone. It's a decision that will be hard to turnaround until they start lending out again to the cream.
Nonetheless, Northern Rock are actually one of the lenders still in the market and lending to buy-to-let property investors. The product is not that bad either.
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