Northern Rock starts lending again as banks feel the heat

As RBS prepares to flog billions in assets, Northern Rock is about to ramp up its mortgage lending again...

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Last Updated: 31 Aug 2010

Northern Rock is to provide an extra £14bn in new lending in the next two years – £5bn this year and another £9bn in 2010 – in a bid to boost the supply of available mortgage finance. It’s a fairly dramatic about-face from the Government, an admission that its previous policy of pushing the Rock to pay back its £27bn state loan as rapidly as possible actually did more harm than good. The nationalised lender has so far managed to pay off an impressive £18bn – but only by effectively winding down its mortgage book, thus sucking finance out of the market and exacerbating the housing market implosion. Doh.

However, Northern Rock has now been declared open for business again, with no pressure to pay back taxpayers. The days of 100%+ loan-to-value mortgages are long gone, but Chancellor Alistair Darling says it’ll be allowed to go up to 90%. Whether anyone will want to take on a mortgage like this when house prices are still plunging is a moot point – but at least an increase in the supply should improve choice and affordability for would-be borrowers (it might even re-inflate the property bubble - ideal).

Sadly there’s little in the way of good news from our other big banks today. Reports suggest that RBS (currently 68% state-owned) is planning to sell off about a fifth of its business and cut thousands of jobs, in a bid to protect its better-performing divisions. New boss Stephen Hester seems to think that if he can flog about £250bn in assets, he might even be able to pay the Government off within five years. And to be fair, the plan seems to have gone down well with the market: RBS has actually seen its share price rise this morning (a fairly infrequent experience lately).

Elsewhere Lloyds Banking Group looks set to require another injection of funds after the huge losses at HBOS, with some suggestions that it might have to be nationalised. In the US, Citigroup and Bank of America both seem to be teetering on the brink of another state bail-out. And even HSBC, one of the few institutions to finish last year in the black, is currently rumoured to be planning a rights issue to raise cash. (Although we were reminded today that it hasn’t lost its eye for a good deal: it made a £250m profit buying back the HSBC Tower in Canary Wharf last December from Spanish firm Metrovacesa – which by contrast did so badly out of the deal that it’s now gone bust).

In other words, the nationalised Rock is suddenly looking like the healthiest bank in town – and thanks to a giant taxpayer subsidy, will be able to offer mortgages that most lenders can’t currently afford. That should go down well with its competitors...


In today's bulletin:

Northern Rock starts lending again as banks feel the heat
Mandelson gives LDV row the swerve
Ryanair's check-in desks checking out
Were our big banks run by psychopaths?
Editor's blog: Sadness as Saab reaches the end of road

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