Northern Rock – how will chaos affect mortgages?

Permalink: Northern Rock – how will chaos affect mortgages?
by Kay Murchie

Northern Rock, Britain’s fifth largest mortgage lender, has been affected by problems funding its mortgage offerings following the crisis in confidence in the financial markets. The outcome of the US subprime lending collapse has meant that banks are anxious about lending to each other.

The Bank of England agreed to throw Northern Rock a lifeline and agreeing the first bailout of a British bank since money markets went into crisis over the summer.

While savers queue outside the country’s 72 branches in an attempt to get at their savings, what happens to its mortgage customers?

Analysts have commented that it is unlikely that Northern Rock will go bust as it would be bought out by another bank. Experts have suggested that ING, Royal Bank of Scotland and HSBC could be potential bidders.

However, in the unfortunate event of a mortgage lender going bankrupt, homeowners with loans from the bank or building society would not be mortgage-free. A bank’s mortgages represent an asset, the new owner of the bank would consider the monthly payments on mortgages as assets and borrowers would be expected to continue making them, or lose the home that the mortgage is secured against.

A mortgage borrower will simply continue making their monthly payments and if there were to be any changes of how this is done, or where it would be paid to, they would be notified.
Potential borrowers with a firm mortgage offer from Northern Rock will see those honoured.

Northern Rock’s website is currently running with a message asking users to be patient and claiming that transactions will be dealt with.