Posted: Mon Sep 24, 2007 1:24 pm
Concern about the bank's mortgages and lending policies has been mounting for years
Savers with deposits in Northern Rock accounts can rest easy that their money is secure following reassurance from Chancellor Alistair Darling, but debt counsellors now say mortgage customers could lose their homes because of the bank's lending practices.
Last week, as the crisis at Northern Rock began to unfold, chief executive Adam Applegarth defended his institution by insisting that the bank had only ever conducted its lending in a responsible manner. He claimed that the bank's default rate on mortgages was less than half that of other lenders.
But money advisers and others dealing with debt and insolvency are expressing growing concern about both the level and nature of many of the bank's loans. Indeed, some debt counsellors are surprised that it has taken this long for the problem to emerge.
Cash has evidence of one couple, clients of Citizens Advice in the Midlands, who have total debts of over £250,000 and fear that their home will be repossessed. Originally they owed £90,000 in a mortgage with a mainstream lender, along with £90,000 of unsecured debt, a £45,000 secured loan and various miscellaneous debts. But they were later able to arrange a new mortgage with Northern Rock for £152,000, with an additional attached unsecured loan of £11,500 - in addition to their existing unsecured debt and secured loan. This was based on a property worth £152,000 and a combined monthly net income, including child benefit, of about £2,300.
This, according to Suman Antcliffe, an advice services manager with Citizens Advice, is a classic example of the type of irresponsible lending, particularly where mortgages have been tied into consolidated loans, that has become increasingly prevalent in recent years. 'Traditionally, no mainstream lender would have contemplated lending in this situation as one of their first considerations would have been the level of other debts. But in recent years, checks on affordability have become much less stringent.'
Antcliffe says this type of lending is based on the conjecture that clients' circumstances are never going to change - 'for example, [that] they will never have children, or never change their jobs. Above all, the inherent assumption is that property prices will continue to rise.'
Peter Tutton, policy adviser with Citizens Advice, confirms that there have been concerns over some of Northern Rock's products and lending practices. 'Although we find that the majority of irresponsible lending and inadequate affordability tests take place in the sub-prime sector, Northern Rock's system of merging secured and unsecured debt, as in their Together loan, is rather odd for a mainstream lender,' he says. 'In terms of volume and rates, Northern Rock is similar to most of its high-street rivals, but some of its lending practices and funding seem to have more in common with the sub-prime sector.'
But unease about practices at Northern Rock is not confined to debt counsellors, nor is it merely a recent concern. Five years ago, a Scottish personal insolvency expert told the bank that he believed its reckless lending policy would cause people to lose their homes.
Graham Tough, a senior partner with Glasgow-based accountants Martin Aitken & Co, estimates that he has dealt with 4,000 personal insolvency cases over recent years and that between 10 and 20 per cent of these have involved Northern Rock as a major creditor.
'I was very concerned that Northern Rock's lending policy for its Together mortgage would inevitably lead to more sequestrations [repossessions] in Scotland, and raised this directly with its legal department. Although there was some understanding of the problem it was clear it was a management-driven policy,' he explains.
Antcliffe says that although borrowers have been dealt five base-rate rises in a row, the real cause of many homeowners' problems lies elsewhere: 'Virtually all the repossessions I deal with have been caused by irresponsible lending, not a rise in interest rates.'
Northern Rock denies that it has lent irresponsibly. A spokesman, Ron Stout, said: 'We do not lend inappropriately with any of our products. The circumstances of customers may change and they may eventually experience payment difficulties but at the outset we rigorously assess whether they can afford any of our loans. It is clearly not in our interests or in the interests of borrowers for them to over-commit themselves.'
Source: guardian.co.uk
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http://www.iva.co.uk/forum/default.asp?CAT_ID=5
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Savers with deposits in Northern Rock accounts can rest easy that their money is secure following reassurance from Chancellor Alistair Darling, but debt counsellors now say mortgage customers could lose their homes because of the bank's lending practices.
Last week, as the crisis at Northern Rock began to unfold, chief executive Adam Applegarth defended his institution by insisting that the bank had only ever conducted its lending in a responsible manner. He claimed that the bank's default rate on mortgages was less than half that of other lenders.
But money advisers and others dealing with debt and insolvency are expressing growing concern about both the level and nature of many of the bank's loans. Indeed, some debt counsellors are surprised that it has taken this long for the problem to emerge.
Cash has evidence of one couple, clients of Citizens Advice in the Midlands, who have total debts of over £250,000 and fear that their home will be repossessed. Originally they owed £90,000 in a mortgage with a mainstream lender, along with £90,000 of unsecured debt, a £45,000 secured loan and various miscellaneous debts. But they were later able to arrange a new mortgage with Northern Rock for £152,000, with an additional attached unsecured loan of £11,500 - in addition to their existing unsecured debt and secured loan. This was based on a property worth £152,000 and a combined monthly net income, including child benefit, of about £2,300.
This, according to Suman Antcliffe, an advice services manager with Citizens Advice, is a classic example of the type of irresponsible lending, particularly where mortgages have been tied into consolidated loans, that has become increasingly prevalent in recent years. 'Traditionally, no mainstream lender would have contemplated lending in this situation as one of their first considerations would have been the level of other debts. But in recent years, checks on affordability have become much less stringent.'
Antcliffe says this type of lending is based on the conjecture that clients' circumstances are never going to change - 'for example, [that] they will never have children, or never change their jobs. Above all, the inherent assumption is that property prices will continue to rise.'
Peter Tutton, policy adviser with Citizens Advice, confirms that there have been concerns over some of Northern Rock's products and lending practices. 'Although we find that the majority of irresponsible lending and inadequate affordability tests take place in the sub-prime sector, Northern Rock's system of merging secured and unsecured debt, as in their Together loan, is rather odd for a mainstream lender,' he says. 'In terms of volume and rates, Northern Rock is similar to most of its high-street rivals, but some of its lending practices and funding seem to have more in common with the sub-prime sector.'
But unease about practices at Northern Rock is not confined to debt counsellors, nor is it merely a recent concern. Five years ago, a Scottish personal insolvency expert told the bank that he believed its reckless lending policy would cause people to lose their homes.
Graham Tough, a senior partner with Glasgow-based accountants Martin Aitken & Co, estimates that he has dealt with 4,000 personal insolvency cases over recent years and that between 10 and 20 per cent of these have involved Northern Rock as a major creditor.
'I was very concerned that Northern Rock's lending policy for its Together mortgage would inevitably lead to more sequestrations [repossessions] in Scotland, and raised this directly with its legal department. Although there was some understanding of the problem it was clear it was a management-driven policy,' he explains.
Antcliffe says that although borrowers have been dealt five base-rate rises in a row, the real cause of many homeowners' problems lies elsewhere: 'Virtually all the repossessions I deal with have been caused by irresponsible lending, not a rise in interest rates.'
Northern Rock denies that it has lent irresponsibly. A spokesman, Ron Stout, said: 'We do not lend inappropriately with any of our products. The circumstances of customers may change and they may eventually experience payment difficulties but at the outset we rigorously assess whether they can afford any of our loans. It is clearly not in our interests or in the interests of borrowers for them to over-commit themselves.'
Source: guardian.co.uk
Please post any news stories about IVAs here:
http://www.iva.co.uk/forum/default.asp?CAT_ID=5
See my Blog:
http://ivanews.blogs.iva.co.uk