Trouble ahead for Northern Rock borrowers

Friday, 22 February 2008 12:00 AM

The government's decision to nationalise troubled lender Northern Rock could spell disaster for the bank's borrowers, according to financial comparison website Moneynet.co.uk.

Despite the 'business as usual' message, the new management team put in place by the government - headed by former head of Lloyds of London Ron Sandler - borrowers could struggle to find a suitable deal when their present fixed-rate mortgages expire.

According to research from the company borrowers who have a history of adverse credit, a high loan-to-value (LTV) on their mortgage or those who rely on non-standard means to prove their income, are most at risk.

"After months of government platitudes, the outcome many Northern Rock customers have feared the most has come true - they are going to lose out in the worst possible way," said Moneynet.co.uk chief executive, Richard Brown.

"Unless they can persuade a different lender to offer them an affordable alternative, thousands could face losing their homes when their fixed rate deal reverts to Rock's standard variable rate (SVP)."

According to Moneynet, borrowers could face dramatic increases in their mortgage repayments as Northern Rock tightens its lending criteria.

A borrower with a £200,000, 25-year interest-only mortgage could see their interest rate increase from 5.19 per cent to 7.59 per cent, if their repayments reverted in Northern Rock's SVP.

This could mean repayments increase from £856 to £1265 - some 44 per cent.

Northern Rock has reportedly also been telling financial advisors to direct borrowers away from Northern Rock at this time - suggesting the bank is offloading some of the weaker loans associated with the subprime lending crisis.

"This is a catastrophe not just for those borrowers at the margins of affordability but also for those loyal customers of several years standing who have never missed a payment," concluded Mr Brown.

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