Northern Rock repayments threatened by falling house prices

by Gill Montia

Story link: Northern Rock repayments threatened by falling house prices

Northern Rock’s chairman, Ron Sandler, has admitted that falling house prices could have serious consequences for the bank’s scheduled repayment of £24 billion to the Bank of England.

Housing market optimists, including the Government, are predicting a fall of up to a 10% in UK residential property prices by the end of this year and Mr Sandler has indicated that a decline of even 5% would create difficulties for the bank.

The chairman’s comments were made to the Treasury Select Committee during a question and answer session in which he declined to predict the point at which falling UK property values would render the repayment schedule untenable.

The bank says it is confident that the money will be repaid, even in the event of a major recession, although the timescale would be extended.

Under the current agreement, the loan should be repaid by the end of 2010 and Northern Rock is continuing to shrink its mortgage book to achieve this.

Meanwhile, the lender is seeing a rise in the number of its customers who are three months or more in arrears with mortgage repayments.

It has been encouraging existing borrowers to remortgage elsewhere but this has had the disadvantage of downgrading the bank’s customer base as it is retaining borrowers who cannot remortgage with another lender because of poor credit histories.