Mortgage Lending

Following an announcement on Monday that the nationalised Northern Rock are to slow down the repayment of their Government debt, and lend up to £14 billion over the next 2 years, RBS have also confirmed they will lend £9 billion this year.

RBS have just reached an agreement with the Treasury to take part in the Government’s Asset Protection Scheme. Under the scheme the Government will provide insurance against part of any loss from specific investments, which it is hoped will restore confidence in the bank and encourage lending.

In return for access to the scheme, banks are required to pay a fee and enter into a legally binding agreement to increase lending to homeowners and businesses. The fee to RBS is £6.5 billion, and they are expected to bear the first £19.5 billion of any loss.

Details of the mortgages that will be made available have not been announced although Alistair Darling said Northern Rock would lend up to 90% of a property’s value, which will hopefully encourage other lenders to follow suit.

CML Director General Michael Coogan commented: "While other lenders will no doubt be watching carefully to assess the competitive impact of Northern Rock returning to the market as an active mortgage lender, in overall market terms anything that improves the supply of lending is a positive. "Mortgage redemptions funded nearly all the £18 billion of the loan that Northern Rock repaid to the government. This was £18 billion that had to be absorbed by other mortgage lenders. By removing this market pressure, other lenders as well as Northern Rock should experience an increased capacity to lend."

It is also expected that the newly formed Lloyds Banking Group, which includes lenders such as C&G and Halifax, will announce it’s participation in the Asset Protection Scheme tomorrow.

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