Rock borrowers thrown to the wolves
By Chris Gilchrist     02nd April 2008

The business plan presented to the government by Northern Rock’s new bosses includes pushing 60% of existing mortgage borrowers out the door when they try to re-mortgage this year.

But customers left out in the cold are unlikely to get a friendly reception on the High Street.

The government wants Northern Rock to repay its massive £24 billion loan as soon as possible. That means slashing its mortgage book. Rock will do this by offering very unattractive deals to people re-mortgaging from now on. They will have every incentive to seek a better re-mortgage deal elsewhere. But will they get one?

We have already seen plenty of evidence of lenders tightening lending criteria and restricting the best mortgage deals to below 80% Loan-to-Value propositions. At the same time, lenders are increasing interest rates on tracker mortgage deals and arrangement fees continue to climb

Getting a decent mortgage rate can be difficult
So if you are looking to replace a Northern Rock mortgage, switching to a better deal; won’t be a breeze, as it was last year.

But though the market is less competitive than it was in 2007, good mortgage deals are still available to those with good credit ratings and LTV at 80% or less.

It looks as if Rock will be offering very unattractive variable mortgage rates of over 7% and unless your credit rating is dire you should be able to better that in the market. On a £100,000 mortgage, you could save as much as £1,500 a year by securing a better deal.

Loans in shorter supply but it’s not the seventies
Many old-fashioned building societies are now so overwhelmed by demand for loans that they are rationing them. Some big lenders, like HSBC and Lloyds TSB, have plenty of capacity but will only take loans on their terms - using lower earnings multiples than were common last year. And getting a decent rate on a self-certification basis is also now a tough challenge.

The message for Rock borrowers needing a re-mortgage in the next few months is to get on the case now. I suggest using a mortgage broker to shop the market for you. But before that, read my guidelines for re-mortgagers - it will pay to put yourself forward in the best possible light

Northern Rock’s plan also requires it to attract more deposits from the public. It claims it won’t abuse its government guarantee but already UK bankers are preparing complaints to the European Commission about the high rates Rock offers. It will take many months before the eurocrats get stuck into this case, so in the meantime, we have a High Street savings battle in which savers are the winners and borrowers the losers.

As our comparison tables show, the biggest battleground is cash ISAs, where every week sees attractive new offers being launched. If you pay tax, use a tax-exempt mini-cash ISA to provide the best home for your rainy day money.

Article produced by EveryInvestor.co.uk