Northern Rock pulls plug on 125% mortgages

Published on Thursday 21 February 2008 20:32

IN AN effort to limit its risky lending, Northern Rock yesterday pulled its Together mortgage range, which offered a loan to value (LTV) of up to 125 per cent.

The range, launched nine years ago, proved popular with first-time buyers as it allowed them to combine a mortgage and personal loan to borrow more than the amount their property was valued at.

Alliance & Leicester, Coventry Building Society, Godiva Mortgages and Abbey – also pulled their 125 per cent LTV deals this week. Only Birmingham Midshires Solutions remains in this market.

Northern Rock’s announcement came as Prime Minister Gordon Brown promised the government would respect European Union rules on state aid in its nationalisation of the struggling lender.

The European Commission is expected to force Northern Rock to downsize in compensation for receiving government aid.

A spokeswoman for Northern Rock said:“Withdrawing the Together range is consistent with market conditions. Together applications have fallen significantly … and we’re also trying to rein back new lending.

“Competitors have withdrawn similar products in the last few days and this would have left us with a disproportionate number of applications.”

Michelle Slade, an analyst at Moneyfacts.co.uk, said Northern Rock was at the start of a difficult journey and this appeared to be one of the first of many prudent steps it is likely to undertake.

Melanie Bien, a director at independent mortgage broker Savills Private Finance, said: “Once the Rock is nationalised, the government could not be seen to be telling people not to overstretch themselves and then selling them 125 per cent LTV mortgages.

“The demise of the high LTV mortgage is down to two things: the impact of the credit crunch and the slowdown in the housing market.”