One of the UK's largest mortgage lenders, the Northern
Rock, is applying to the Bank of England for emergency financial support.
The decision for the Bank of England to become the
“lender of last resort” is extremely rare, and follows only a week
after it was disclosed that Barclays
Bank had needed 2 emergency loans of £314m then £1.6bn, that Deutsche
Bank has shut down its proprietary credit trading desk in London and the
collapse of Victoria
Mortgages earlier this week.
Following the widespread losses made by investors in loans
to US homebuyers with poor credit history, the so-called sub-prime loans,
investors have become wary of buying all mortgage debt, including Northern
All banks are having greater difficulties than normal
getting funding from the market but as a specialist mortgage lender, no-one
really wants to lend to Northern Rock.
In the first six months of the year, Northern Rock made
pre-tax profits of just under £300m, barely changed from the previous year, however
it massively increased its share of the mortgage market, taking 18.9% of all
net mortgage lending in the UK
against its previous peak of 14.5%, seen in the second half of 2006.
The firm's shares have almost halved in value this year and
talk that it may be in further trouble left it as the biggest loser on the FTSE
100 on Thursday, closing down 4.9%.
Northern Rock has loans and other assets on its balance
sheet of £113bn. The value of deposits placed with it by retail customers is
Mainstream mortgage lenders Northern Rock and
Alliance & Leicester both originate subprime loans for Lehman
Brothers . The banks, for whom “non conforming” loans
represent just a fraction of overall mortgage business, say they are still
originating new business for Lehman.
Are we seeing the beginning of a melt down in the housing
Is Gordon’s carefully doctored economy beginning to unravel
NuLab – Destroying Britain
from the inside out.