Northern Rock accused of forcing mortgage rates up by starving rivals of cash

Published 03rd Oct 2009

Nationalised Northern Rock was yesterday accused of forcing up mortgage rates by starving rivals of vital cash from savers.

The practice has left millions of borrowers paying more for their mortgages because building societies cannot afford to cut rates, it was claimed.

Building societies rely on raising money from high street savers to finance their lending to homebuyers.

But Northern Rock has launched a string of 'Best Buy' savings account deals with which building societies cannot compete.

Without attracting savers' cash, some say they are no longer able to lend.

Economists estimate that Northern Rock and Government-run National Savings & Investments together raked in £7 out of every £10 saved in the last six months of 2008.

The added lure for savers is that both say all money is 100 per cent guaranteed by the Government.

Northern Rock was nationalised after a run on the bank in September 2007.

Last month, it paid up to 3.75 per cent fixed for a year on its savings accounts while the biggest building society, Nationwide, paid only 3 per cent.

Adrian Coles, director-general of the Building Societies Association, said: 'It's grossly unfair to building societies that banks that needed propping up by the Government now benefit from their mistakes.

'It's time the Government removed the explicit state guarantee covering savings held with Northern Rock to allow a level playing field for those institutions that didn't need Government help.'

David Hollingworth, from brokers London & Country, said: 'There is a lack of competition and that means that those wanting a mortgage have to pay a higher price for it. Smaller lenders are finding it hard to compete because they can't get hold of funds.'

A Northern Rock spokesman said: 'We review our position in the market regularly. We do need to attract savers, but we constantly look at whether a rate is too attractive.'

A Treasury spokesman said: 'Northern Rock cannot put up a closed for business sign. We want to promote greater competition in the market.'

Source: ' This is Money '

View All Latest News