Just wanted to jot down a few thoughts on hearing that Northern Rock are to release £14 Billion into the UK economy via lending for mortgages.
Frankly it seems pretty obvious that this isn’t just the UK Governments method for pumping liquidity into the UK housing market, but also demonstrates a frustration with the money used to help ‘prop up’ the Financial Sector. Much of the Government bail-outs were supposed to help restart the financial institutions in question to start lending again, this plainly hasn’t happened. I think everyone, especially the UK Government, is disappointed that the money has been used to shore up the massive debts run up, as well as the short-falls exasperated by the world-wide economic downturn.
Northern Rock was the first of the big financial companies to bite the bullet and need to seek massive Government investment to stay solvent, or be nationalised, whichever you prefer.
What’s phenomenal about this apparent ‘turn of face’ given that up until today they had closed their books to new mortgage lending (in fact they had been aggressively repossessing homes across the UK), is how much the Bank had ‘closed the gap’ between it’s original debt and what it now owes; a massive two-thirds, the original level of debt when it sought Government intervention was £27 Billion and it now stands at £9 Billion.
The Shadow Treasury Minister, Greg Hands, is concerned about the dichotomy between existing Northern Rock customers, facing repossession, with all the new mortgage customers; a very valid point given that the Bank has said that it will be restructured, with new mortgages and existing mortgages managed separately, furthering any gap between the two groups.
Evidently this is not all that there is to this story and the three other questions I think we should be asking right now are:
Given that the number of homes in the UK repossessed by lenders rose last year by 54% to 40,000, according to the Council of Mortgage Lenders (CML), how much was this number contributed to by Northern Rock?
Given that the new management team at Northern Rock successfully decreased the Banks debt by £18 Billion, how much of this was done via straight forward repossessions and how much by other methods, and if replicable in an appropriate manner, can any of these alternative approaches to repossession be turned into ‘best practices’ which can be shared with the rest of the UK banking community to reduce their levels of debt too?
Given that organisations like the CBI are saying if credit isn’t available soon the recession is going to get a whole lot worse what is the Government going to do to get the other Banks and Financial Institutions lending again as soon as possible?