Northern Rock Crisis Article Discussion

harryhound

pounds wrote: »

Are the current mutual building societies eg. Nationwide, likely to be more stable and safer than investing in banks that have shed their mutual status eg.Northern Rock

Nationwide is a huge organisation, have they been offering loans that are not WELL covered by over valued houses?

Have they been taking wholesale money and dealing in SIV's (parcels of dodgy loans)? I think we should be told.

You are probably a share holder of Nationwide as some of their saving accounts make the first signatory a share holder. (Did you sign a piece of paper promising to give any profit you made by selling your share holder rights to charity on a demutualisation?).

Equitable life was a mutual organisation, with no other shareholders, first in the line to carry the can, when the directors made a massive error of judgement.

Some shareholders also tend to keep an eagle eye on what the directors are doing.

wombat42_2

NR shares now down 40% today !

johnfthetraveller

lw02vah wrote: »

We are now able to apply for this mortgage, but I would like to know what effect this current crisis will have on our ability to do this? Are Northern Rock still lending? And if so, is it still a good idea to take out this mortgage with the bank in its current state?

Personally I don't think there's much chance of NR failing to fulfill a mortgage commitment. However regardless of the panic, you have to be wary of taking a new mortgage with anyone (but especially NR) that is linked to their Standard Variable Rate (SVR). My NR mortgage is linked to LIBOR, so NR can't change my rate at will, but mortgages linked to SVR can be increased by the banks whenever they so choose. SVR's are, in any case, set to increase slightly.

kirsten72

I took out a new NR mortgage 2 weeks ago. I applied for £100k but initially only needed £30k for a house purchase and the rest I was going to drawdown as and when required to pay for renovations. It is a mortgage that allows overpayments and withdrawals with no penalties.
My solicitor had to drawdown the whole £100k but as I was selling another house she TT'd an excess balance of £70k back to me. I was about to pay this back into the mortgage to draw back out when I required it. If I do this am I now likely to have problems drawing mortgage funds back out at a later date?

ZZR600

Well, with the system of fractional reserve banking, a bank has to only hold a fraction of its deposts in cash, I think its about 10%. Already, £2bn (10%) of Northern Rock's deposits have been withdrawn by customers, so those depositers who are owed the remaning £18bn might lose some of their money.

Reestit_Mutton

harryhound wrote: »

Hi Restit,

You have now got me somewhat worried.
The boss of NR claimed their asset base is 110 billion this morning.

Only 1/4 of this is financed by retail deposits (ordinary people's saving accounts.)

So are you saying that the financial institutions, who have put up the the other 3/4 on short term loans, can help themselves to 3/4 of the assets if/when NR cannot meet their repayments to these financial institutions?

In short, yes. This is normal for most types of debt.

HOWEVER...it's important to distinguish between paying the interest on the loan, which Northern Rock is perfectly able to do as it earns more from those that it lends the money on to (after last week's profit warning NR claimed to be on track to earn profits of 500M this year) and actually being able to repay the sums borrowed from the markets when repayment becomes due. The loan from the BoE is specifically designed to keep a line to further funds open so that NR can "roll over" the maturing money market loans as their redemption dates fall due, should access to funds on the money markets continue to be severely limited. This is why I took issue with Martin's simplistic analysis suggesting it was a prudent "just in case" facility to set up...far from it.

Of course, as and when these loans mature and are paid off with BoE money, the assets put up as collateral become available to use as collateral against a further BoE loan. So, in effect, the loan facility could stretch to the full mortgage assets of NR in time. However, the interest rate is reported to be punitive to the point where NR could be losing money while the loans are held...just not nearly as much as they would lose if they had to take what was on offer on the wholesale markets today.

Of course, they are actively seeking a buyer so insolvency in the traditional sense isn't likely to occur and, in any case, the BoE and govt simply won't allow it (although they cannot say as much on record for fear of setting a dangerous precedent).

The basic problem that has put NR in its current predicament is that it has been borrowing short term to lend out long term with a view to rolling its loans into new short term loans every time the redemption date comes around. Unfortunately the short term money market has, to all intents and purposes, dried up.

HtH
Reestit Mutton
(disclaimer: NOT a financial expert)

oceanofviolence

Hi there,

I've read through this thread, as well as the main article, with great interest.

I currently owe money to Northern Rock in the form of an unsecured loan. Most of the advice being offered to customers seems to be for savers or mortgage holders. I wondered if anyone could speculate on the possible implications for those with unsecured loans, if Northern Rock is bought out?

I notice that someone else has asked this question early in the thread, but I could not spot an answer. I'd be very grateful for any info as I'm not really sure what the possible implications might be for me

Thanks in advance,

Jenny.

derrekmay

Interesting posts, I'm goin to keep on following this thread.

gt94sss2

oceanofviolence wrote: »

I currently owe money to Northern Rock in the form of an unsecured loan. Most of the advice being offered to customers seems to be for savers or mortgage holders. I wondered if anyone could speculate on the possible implications for those with unsecured loans, if Northern Rock is bought out?

You would simply continue paying your loan on the same terms you are now - the money would just go to the new owner of Northern Rock.

Regards
Sunil

oceanofviolence

gt94sss2 wrote: »

You would simply continue paying your loan on the same terms you are now - the money would just go to the new owner of Northern Rock.

Regards
Sunil

Thank you - I suspected this would be the case, but tend to worry about these things, so thought I'd better ask!

Jenny.