Northern Rock withdraws from UK sub-prime market

by Gill Montia

Story link: Northern Rock withdraws from UK sub-prime market

Northern Rock is withdrawing from the UK sub-prime mortgage market, where it had been offering loans on behalf of Southern Pacific Mortgages (a subsidiary of investment bank, Lehman Brothers), since April of last year.

The move is likely to be one of a number of strategic changes that will be announced by Northern Rock following its nationalisation last month.

It is understood that Ron Sandler, the bank’s recently appointed executive chairman, plans to reduce the lender’s £100 billion mortgage book to enable the repayment of the bulk of its £25 billion emergency loan from the Bank of England, by the end of 2008.

Northern Rock’s new mortgages rates are seen as uncompetitive and unlikely to attract new business, allowing the bank to accrue funds from customers who repay their loans and remortgage elsewhere.

At the same time, the bank remains attractive to savers and plans to increase its deposit base by around £10 billion in the coming year.

Mr Sandler is currently preparing a business plan that will be used by the Treasury in a submission to the European Commission, which will be examining whether the nationalisation of the bank breaches state aid rules.

Meanwhile legislation in connection with a compensation scheme for Northern Rock shareholders will be debated in Parliament this week.