Northern Rock raises sub-prime rates

Northern Rock, the fast-growing mortgage lender, is to raise its sub-prime mortgage interest rates, from August 29th.

The lender is increasing the rates on products aimed at those with poor credit histories and those with low or irregular earnings, by 1.25%.

Northern Rock’s core mortgage range will not be affected by the review, which has been prompted by the crisis in the US sub-prime mortgage sector.

Northern Rock is unlike many other mortgage lenders in that it relies on the wholesale money markets for its mortgage funding, rather than deposits.

The US crisis has caused a shortage of cash in the debt markets and Northern Rock has transferred its sub-prime lending to a SPML, a subsidiary of Lehman Brothers, the investment bank.

Recent pressures on the debt markets have already led to forecasts of a reduction in profit at Northern Rock.

Whilst the lender has admitted that the credit markets are difficult, it has continued to defend its financial position, making reassurances that it raised adequate liquidity before the recent market turbulence.

According to the Council of Mortgage Lenders, the UK sub-prime market is much smaller than that of the US, and has been more tightly regulated.

However, sector analysts are watching events in the UK sub-prime market closely, and the news from Northern Rock is accompanied by rumours of a possible takeover of the company.

Discuss this in the Finance Markets forums

Story link: Northern Rock raises sub-prime rates