Northern Rock to be 'stuck with bad credit mortgages'

Northern Rock is set to be left with borrowers with poor credit records – as more creditworthy customers leave, the bank's executive chairman admitted today.

Giving evidence to a House of Common committee, Ron Sandler explained how mortgage customers at the nationalised bank are now advised better deals are available elsewhere.

As a result, he admitted the bank would be left with customers who could not find competitive deals elsewhere.

"When our borrowers are approaching the end of a fixed or discount periods, we let them know they are approaching the end of those periods and we start to alert them to what their choices are," Mr Sandler said.

"And as part of that process – we take them to a panel [of mortgage intermediaries]… who are able to find them alternative products."

Mr Sandler went on to say anyone whose mortgage is maturing is left facing the decision of taking the banks high SVR or remortgage elsewhere.

"Some are choosing to stay, and the majority are choosing to find alternative products elsewhere."

He added: "There is such a risk [we will be left with the mortgage customers no other lender wants].

"There is no question that those customers who represent the better credit risks find it easier to get good alternative products elsewhere.

"And those that are perhaps poorer risk find it more difficult but we do expect over time that is going to increase the risk of our book."

The Northern Rock chief added certain customers with trouble repaying their mortgages could be allowed special situations.

"There will be certain customers we may have to make special arrangements for, if they are struggling to make their payments," Mr Sandler said.

Ann Godbehere, chief financial officer at Northern Rock, told the committee the bank had already repayed £2.8 billion of the £27 billion loan and 25 per cent will repaid by the end on the year.

The full loan is predicted to be returned by the end of 2010.

Even if there is a ten per cent house price crash, the full loan would be repaid by 2011, Ms Godbehere explained.

"2011 is when we believe the bank will get back to break even and will move into profit in the years that follow," Mr Sandler said.

Mr Sandler also claimed the bank's brand was not bust. He explained the Northern Rock brand was re-establishing itself.

Daniel Barnes