Northern Rock Announces 90% Mortgage
With a move clearly designed to inject some life into the housing market, state owned bank Northern Rock has announced that it will resume lending 90% mortgages.
Currently the chances of getting a mortgage of more the 75% are very slim and this move could be seen as a government approved display of intent. Quite how relevant it is remains questionable and many have pondered whether the announcement is more publicity stunt designed to bring back consumer confidence rather than a definite assurance of impending lending.
Northern Rock collapsed in 2007 and was bailed out by a government takeover. It was recently announced that the bank has already repaid two thirds of the £27billion loan it was forwarded to enable its survival and now it would appear that it is to be forwarded additional funds in order to facilitate its lending capabilities.
The Prime Minister, Gordon Brown, has stated he wishes to see a ban on 100% mortgages, and the days of 125% loans – as handed out by Northern Rock prior to its collapse – are well and truly in the past. However, his comments are being seen as somewhat questionable in the circumstances: experts in the field point out that while there were over 100 such mortgages available in the market in the summer of 2007, there are just three available today. These are governed by strict rules with one available in Northern Ireland only, one available specifically to those in the teaching trade, and one that takes collateral. The banning of 100% mortgages is therefore barely a drop in the ocean.
Analysts have pointed to the Northern Rock deal as an example of the manner in which the market has changed of late. Quite clearly, anyone wanting to take out a 90% mortgage will have to be absolutely spotless in terms of credit rating, and will likely find they are paying way over the bank rate. A figure of six percent has been mentioned, making these deals at least fiver percent above the bank base rate.
Although research has found there are some 25 mortgage deals available that offer a 90% loan, it is quite clear that these are at very high rates. Not only that, but consumers have reported a distinct reluctance by the banks to grant them and told of many obstacles being put in the way in order to make them nigh on impossible to get.
If, however, the buyer is able to provide a substantial deposit of 40%, there are some very good deals to be had; on the other hand, someone taking out a 75% loan will find they are paying for the privilege.
Given the above, it is ever more difficult to see how the proposed Northern Rock deal will be beneficial. If it is set too low, in terms of interest repayment, it may well be a boost to the market, but too high and it will prove to be simply the confidence inducing stunt that many suspect.
The state of the UK housing market depends not on extreme deals by the government and the banks, but on the banks returning to the days of old when they understood that they provide a valuable service and are not just a money-making operation.
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