Northern Rock’s Grand Strategy To Jump Start The Mortgage Market.
In an attempt to work with the government on its new policy to aid commercial lending, Northern Rock has been making changes to their approach towards remortgages. The new plans are being put in place to try to allow its customers to remain with them, while at the same time the lender is able to continue repaying the government loan. This new strategy has been adopted in order to try to adhere to new state policies to attempt to reduce the rate at which remortgages are being offered within the marketplace.
The bank was one of the first to suffer in the global financial crisis and Northern Rock recently announced changes to its remortgage strategy. Rather than quickly reducing the number of mortgages on its books, the Newcastle based bank is now planning to retain more customers and reduce its loan portfolio at a slower rate.
This indicates that the lender will boost the amount of money it is lending to existing consumers, with the aim of facilitating a more stable economic climate.
The EU rules have some part to play in Northern Rock’s plans, since one of the major changes that the lender will make will see them offering strongly competitive deals to fewer new clients who may have been offered new deals with other competitors, in a bid to prevent their books from becoming too large.
The major issue with Northern Rock borrowers being almost ‘forced’ to remortgage was that it was placing undue pressure on other banks. With less money available to lend since the credit crunch of 2008, banks and building societies were having their credit taken up by agreeing deals for former Northern Rock customers. At the time, the struggling bank was trying desperately to reduce its mortgage lending in order to repay the government bailout loans.
It has been reported that the new plans have worked well, and that this has allowed them to continue to meet their state loan repayment goals over the past few weeks and months since the bank was bailed out during the financial crisis.
Whilst the bank will now repay the loans at a slower rate than it has in the past, it says that it will continue to meet targets whilst taking a stance that will benefit the lending market as a whole.
A spokesman for Northern Rock said, “Reflecting this and in order to support Government policy to increase mortgage lending capacity in the market, the company confirms that it is slowing down the rate of mortgage redemptions.” The society also claimed that the decision would not affect customers in other areas of the business.
Whilst the change of strategy should benefit the UK lending market, Northern Rock were quick to point out that they will continue to meet targets for repaying government loans. This is in a market where remortgaging has reached the lowest level for ten years, with the Council of Mortgage Lenders reporting consecutive monthly declines in remortgage approvals of up to 20 per cent.
The news however comes as quite painful to mortgage advisers who know that the markets are already extremely sluggish. The news of this strategy will clearly mean that the thousands of mortgage customers with Northern Rock will be unlikely to be moving elsewhere in the near future, however it does mean that the lender may be able to get back on track more quickly.
Timothy Frodsham writes for JustRemortgages.com one of the UK’s top sites for the latest remortgage rates and best remortgage deals.