Northern Rock woos the bonus brigade

Published 25th Oct 2009

Taxpayer-owned bank welcomes City spenders

Northern Rock, the taxpayer-owned lender, has become the first choice for bonus-rich City bankers, as other customers face a continued squeeze on borrowing.

The bank launched a range of best-buy mortgages this month for borrowers wanting loans of up to £1m, including a market-leading two-year fix at 3.69% and a two-year tracker at 2.69% for those with a 30% deposit. Previously, the best buys were generally limited to smaller loan sizes and were not available through brokers.

City bankers confident of big bonuses have descended on London estate agents hoping to buy multi-million-pound homes, boosting demand for mortgages. Northern Rock, which needs to more than double its lending from £4 billion in 2009 to £9 billion next year to achieve government targets, hopes to meet the demand.

It has cut rates five times in the past fortnight alone and offers comparatively generous terms to borrowers who want cash bonuses taken into account.

Gary Festa of HFM Columbus, an adviser, said: “Northern Rock recently offered one of our clients, a Goldman Sachs employee, a deal taking into account 50% of his cash bonus when assessing his income. It made the offer even though there was no bonus the previous year — this sets Northern Rock apart as most banks require a consistent history of bonuses.”

Royal Bank of Scotland, for example, will take only 25% of a bonus into account and requires a minimum two-year bonus history. Northern Rock denies its approach is company policy.

Brokers say they have already placed City buyers with the bank. Mark Harris of Savills Private Finance said: “We’re doing plenty of business with Northern Rock. One client, at investment bank Nomura, was offered a loan close to £1m. His bonus income was taken into account, although basic salaries are higher now and borrowers are less reliant on bonuses.”

Ordinary borrowers, however, continue to be left out. Thousands who took out Northern Rock’s “Together” mortgages, which lent more than the value of the property, are sitting on the bank’s standard variable rate of 4.79% — higher than the market average — because they are in negative equity and cannot remortgage. Karen Richards, 47, an administrator, and her husband Les Parkes, also 47, bought their home in Dartford, Kent, two years ago for £180,500. They borrowed £203,000 from Northern Rock — or 112% of the property value — on a two-year fix at 5.99%, and used the extra cash to consolidate loans and renovate the property.

The home was valued this year at £202,000, putting them in negative equity and out of reach of any deals on the market.

Woolwich, part of Barclays, is also ramping up lending to the large-loan market after pulling back at the height of the crunch. It alerted brokers to better rates for loans above £1m this month in a memo stating that it has “a dedicated high-value lending team available to discuss large loans”. It recently cut its popular lifetime tracker, which has no limit, from 3.24% to 2.79% for those with a 30% deposit.

The average rate for someone wanting to borrow up to £1m is 5.09% on a two-year fix, against 5.11% for a borrower wanting £250,000, said Moneyfacts, the data firm.Michelle Slade of Moneyfacts, said: “Just a year ago there were far fewer loans on offer for those looking to borrow £1m — now someone wanting to borrow that amount can get a best-buy deal. It’s a big shift.”

Northern Rock said: “All our new lending is made responsibly, with affordability being a key part of our assessment.”

Government banks still offering ‘liar loans’

Government banks are still offering loans that do not require proof of income, despite proposals last week from the Financial Services Authority (FSA) to ban the practice.

Northern Rock, which was bailed out by taxpayers after its near-collapse in 2007, alerted brokers to its so-called “fast-track option” in a memo about its new range of products last week.

Fast-track mortgages are mainstream loans where the lender does not need proof of income because the borrower is otherwise “low risk” — perhaps with a big deposit or a high credit score.

The schemes are distinct from “self-certified” loans, which were designed for self-employed people who did not have the requisite two to three years of accounts. They generally have higher rates than standard loans.

The FSA proposed banning both types of loan in its review of the mortgage market last week. The loans made up 49% of the mortgage market in 2007, it said. It is understood at least one of the biggest lenders intends to fight the proposal, arguing that to ban fast-track would add to the cost of processing mortgages. Other banks, including government-backed Lloyds, and Abbey, also offer fast-track approvals on loans of up to 75% of the property value where the borrower has a high credit score.

However, Royal Bank of Scotland told brokers a fortnight ago it would no longer accept fast-track applications.

Northern Rock said that the loans would continue to be available for “customers who achieve a high credit score, are borrowing up to 70% loan to value, and meet all eligibility criteria”.

A spokesman said: “Northern Rock reserves the right to request supporting documentation for fast track cases when considered appropriate.”

Ian Gray of Largemortgageloans, a broker, said: “Fast track is supposed to help lenders process lower-risk deals more efficiently. However, it has been used by unscrupulous applicants and lenders have been making it more difficult to fast track lately.”

The FSA said “Although some lenders still employ it [fast track], they do so only at much lower risk thresholds”.

Source: ' Sunday Times '

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