Rock Results May Well Become Blessing In Disguise

Northern Rock, the state owned bank and mortgage lender, has just announced losses of approximately £0.75 billion for the first six months of this year. It is now one hundred percent owned by the state and these reported losses will be a blow to anyone relying on an early return of the bank to private ownership.

Taking a closer look at how the loss however suggests a strategy which may allow good enduring value for the bank and also a much needed boost to mortgage availability which will profit the housing market and construction business.

Firstly, it should be stated that the loss occurred in part from a shedding by the Rock of a lot of its’ lucrative mortgage book during the time of public ownership. Essentially, borrowers were encouraged to take their mortgage business elsewhere in an attempt by the Rock to release cash in order to repay the government bailout money, made available to the bank at the end of 2007. This has been a decent policy in that it has enabled the bailout to be reduced to a current level of only £11 billion from a peak in excess of £30 billion. However the issue is that, because the only Rock borrowers able to move away are the best ones, this has left the Rock with a higher element of toxic debt. Much of this toxic business is 125% mortgage arrangements which will take a considerable time to purge out and will store up further potential losses in coming years.

Secondly, lower lending levels have reduced underlying profit. This is particularly galling at a time when careful mortgage lending is relatively profitable, interest rate margins being notably high at the moment.

So the government may be forced into a longer term scheme for the bank in which they attempt to increase lending to, or even higher than, earlier levels. If such lending is done carefully then a good base of prudent and profitable mortgage lending will help to off set future losses and will also add real worth to the bank to certify that the state gets most value from any future return to public ownership.

As long as that the government make the right moves now, a rebuilding of the Rock as a chief mortgage provider could be good news for the housing market as well. Restricted mortgage lending is now thought to be the largest inhibitor to a sustained property market recovery, so some new mortgage products would certainly not go amiss. Owners looking to Sell Property Fast [http://www.thesellhousefastcompany.co.uk/] will hope the government adopt this policy and the Quick Home Sale [http://www.thesellhousefastcompany.co.uk/] may become an aspect of property transactions in the very near future, but for the moment, I’m just very grateful that I’m not in the alarming position of having to Sell my House fast [http://www.thesellhousefastcompany.co.uk/howmuchwillyoupay.asp] in the current credit crunch.