Northern Rock arrears exposure in question

by Gill Montia

Story link: Northern Rock arrears exposure in question

Evidence of Northern Rock mortgage borrowers falling into arrears at a faster than average rate has fuelled fears that the cost to the taxpayer of the bank’s nationalisation is rising.

The lender’s default and repossession rates have been highlighted in a report on Granite, a Jersey-based company, by credit rating agency, Standard & Poor (S&P).

Granite is an offshore trust that holds many of Northern Rock’s mortgages and according to recent figures the firm’s performance is lagging behind those of similar investment vehicles set up by Northern Rock’s High Street competitors.

S&P has revealed that arrears of 90 days or more in mortgages held by Granite increased by two-thirds in the three months to the end of June, while repossessions increased from 134 a month in the first quarter of the year, to 353 a month in the second quarter.

Granite was set up by Northern Rock but the businesses are separate legal entities.

However, the impact of any rise in default and repossession rates would be felt by both Granite bondholders and Northern Rock.

Northern Rock says it is content that Granite is not in difficulties and points out that the trust’s bondholders are adequately protected by its reserve funds.