Now that the various bidders for Northern Rock have been falling by the wayside, the smart money is on the stricken bank being nationalised in the New Year, as this column forecast last week. If so 800,000 mortgages will land on the desk of the Chancellor, Alistair Darling, making him potentially the biggest landlord in the land.
Of course, the government will not formally own the houses on Northern Crock’s loan book, but it will own the debts on them. And if the Northern Rockers start to default, and they very well might, then the government will be in the business of widespread repossessions. Yes, Darling’s debt-collectors will be banging on doors across the land, calling on householders to hand over their keys or hand over their money.
No one knows how many of Northern Rock’s mortgages are sub-prime, since this is very much in they eye of the beholder. But the spectacular growth of the bank - it now has a fifth of all mortgage lending - was based on aggressive sales techniques. It was one of the banks, Abbey is another, which started selling 125% “suicide” mortgages - which meant that the borrower was in negative equity before they moved in.
The most iniquitous practice was self-certification, which means that the borrower is invited to make up their own salary. Now, the company denies that its sales staff connive with borrowers to misrepresent their true incomes. But I have direct experience of the kind of practices employed by Northern Rock and its agents.
In October, not long after the bank went under, I telephoned Northern Rock’s website to ask for a loan. I said that I was earning £30,000 a year (not my real salary) and that after tax and maintenance deductions, I had £18,000 to buy a £240,000 flat. A broker said they’d have to think about it. Then came back saying that I could have a variable-rate, interest-only mortgage on a ‘self certification basis’ of £1,130 a month. This would have left me with £370 a month to live on and was plainly unaffordable. But the broker was unconcerned and advised me simply to add on possible future earnings to boost my salary level.
I don’t know how many people will have taken on these mortgages, but the spectacular growth of Northern Rock suggests a lot. In the New Year, these could end up on the government’s books if, as seems increasingly likely, the the government has to take it over to secure the £25bn of our money that has been loaned to Northern Rock. Gordon Brown could become the biggest sub-prime mortgage lender in Britain.
It’s not quite what the PM had in mind when he promised a return to affordable housing.
Oh, and by the way, in case you thought that NR might have been chastened by the recent travails, think again. Last week, the same broker phoned me back last week to see if I was still interested.