Northern Rock defies Government’s call, raises mortgage rate

Posted under General by Michael

Not heeding the Government call to cut rates and commence lending, Northern Rock raised the rates of its competitive home loans. The state-owned mortgage lender was nationalised in February 2008. In blatant defiance of Government guidelines, it has hiked cost of its new fixed-rate mortgages by 0.3 percentage point. This hike would make life of the struggling borrower more difficult with addition of £40 per month to the cost of £150,000 loan.

Northern Rock also hiked one-year tenure lowest rate deal from 3.99% to 4.19%.

Reduced rates are reported to have caused rush of new customers for loans, exhausting Northern Rock’s fund allocation for low-rate deals. This led to increase of 4.19% for lowest rate deal.
Northern Rock justified its hike in rates saying that deals were very much cheaper than those of its competitors. The bank does not want breach of competition constraints which would deprive it benefit of Government guarantee.

The Bank of England considers that persuading banks to extend loans to firms and families was the most pressing task before the nation. Its governor, Mervyn King warned that if lending does not pick up, Government would be forced to nationalise entire banking system.

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