Most Rock repossessions linked to 125% borrowing product

Northern Rock said most of its recent home repossessions related to a mortgage product that allowed customers to borrow up to 125% of their home value.

Northern Rock said most of its recent home repossessions related to a mortgage product that allowed customers to borrow up to 125% of their home value.

The bank said 70% of its 3,710 homes in possession at the end of June had been bought with a “Together” mortgage, which offered a maximum of a 95% mortgage alongside a 30% secured loan.

This product was launched in 1999 to enable more customers to get on the housing ladder, but was stopped after the bank was nationalised in February.

The proportion of Together mortgage holders, which make up around 172,000 of the bank’s 662,000 accounts, more than three months in arrears has soared from 0.73% a year ago to 2.14% this June.

Borrowers who took advantage of the product’s maximum terms face the prospect of negative equity with estimates for house price falls of up to 20% by the end of next year.

Northern Rock has revealed plans to increase its debt management staff numbers from 185 to 500 in the coming months to cope with rising numbers of mortgage defaulters and those having difficulties meeting payments and remortgaging.

They will be headed up by a new director of the division, Andy Tate, who is to join in October from the Royal Bank of Scotland where he is head of collectables and receivables.

The overall proportion of the lender’s £77bn (€97.2bn) mortgage book more than three months in arrears more than doubled to 1.18% during the first six months of this year, while the numbers of homes in possession jumped two-thirds.

Northern Rock has blamed rising food and fuel bills for squeezing household budgets and piling pressure on its loan books.

Executive chairman Mr Sandler, who has warned of further tough times, said: “In this challenging economic environment, it is essential that we have a highly effective debt management capability.”

His recovery strategy for the bank involves halving the balance sheet to £50bn (€63bn) by the end of 2011 by stopping all business lending and accelerating mortgage redemptions for existing customers.

It also appears to involve an unforgiving attitude for customers who default, with the bank saying the increase in properties in possession was “in line with the company’s policy of rapid movement towards recovery where it is clear the borrower will not maintain payments”.

Mr Tate has 20 years of retail banking experience, and “drove a step change” in debt recovery performance at RBS.

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