The struggling bank may see as much as 10 billion pounds of cash from the government to ramp up mortgage lending. The Treasury has yet to make a final decision, which may also see the bank hiring new staff. Spokesmen for the Treasury and Northern Rock, which is due to unveil a new business plan in the next few weeks, could not immediately be reached for comment.
Northern Rock the first British casualty of the credit crunch, revealed that it had been forced to seek emergency support from the Bank of England in September 2007. The bank has been nationalized since early 2008 after attempts to find a private sector buyer fell through. Northern Rock has been shrinking its mortgage book and focusing on repaying a government loan since its nationalisation.
5 billion pounds of new equity would allow Northern Rock to write about 50 billion pounds of new lending, providing the capital is not eroded by bad debts. Could this be what the UK housing market is waiting for?
If Northern Rock offer sensible loans at resonable interest rates it could just be what the UK public needs.
The Government now has a Â£200m package of measures designed to prevent some of the most vulnerable families losing their homes due to repossession. The government scheme subject to a range of eligibility criteria is aimed at households who are eligible for homelessness assistance. In the scheme housing association will be able to buy part or all of the struggling homeowners home. The owners will then be able to stay on as a tenant at a reduced rent.
Does this sound familiar to you? I think the government has decided to offer its own Sell and Rent Back scheme to struggling homeowners. Using tax payers money of course!
To what extent will the government be able to help? well lets look at the amount involved Â£200m. With the 200m they reckon they will be able to help 6,000 homes avoid repossessions across England. his may seem like a large number, but compared to the ammount of yearly repossessions, this figure is but a drop in the ocean. In 2007, 27,000 homes were repossessed by their lenders as the homeoweners could not afford to pay their mortgages. This figure rose to 45,000 in 2008. This year the number of repossession will be set to rise 75,000 (CML estimate) as the recession takes its toll. 6,000 homes saved will only therefore be 8% of homeowners that will be able to benefit from the new scheme. What about all the other 92% of homeowners who face repossession?
Will this be opportunity for the investor with private sale and rent back schemes? I think so, but any investor getting involved in rental properties will have to be cash rich as most buy to let mortgages now require at least 25% deposit.