Taxpayer-bailed Northern Rock set to offer 90% mortgages in bid to return to private ownership
Published
28th Feb 2011
Northern Rock is preparing to offer 90 per cent mortgages just three years after it was bailed out by the taxpayer.
Sources told the Financial Times that bank bosses may introduce the high loan-to-value mortgages today in its bid to raise more money before it returns to private ownership.
But the policy has come under fire from critics who say it was similar high-risk loans - some as much as 125 per cent of a property's value - that saw the lender fall to its knees. Since then Northern Rock has capped its loans at a maximum of 85 per cent.
Northern Rock was nationalised after becoming the first major British bank in more than 150 years to suffer a bank run.
There are currently around 200 mortgages on the market that cover 90 per cent of the property's value - a quarter of the number offered before the financial crisis hit.
Northern Rock received £3billion in taxpayers’ cash in 2007. It has since had to hold high levels of liquid assets for protection against another run on it.
Regulators have only just permitted it to use its assets to lend more, despite a £140million loss in 2010.
It has also been permitted to buy back some of the loans it used to own.
It is being advised on its revised lending policy and regaining private ownership by investment bank Morgan Stanley.
The government has long been keen on returning the bank to the private sector, since selling it would raise cash to help cut the country's troublesome deficit.
Options for Northern Rock include a sale, stock market flotation or 'remutualisation' - turning Northern Rock into a company owned by its customers, such as UK loans and savings group Nationwide.
Analysts consider that an eventual sale of Northern Rock is the most likely outcome for the business. Virgin Money, supermarket retailer Tesco's banking arm and private equity firm JC Flowers have been cited as possible acquirers.
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