Northern Rock cuts mortgage products

Northern Rock is cutting back its range of mortgage products in efforts to reshape the business and emerge from its credit problems.

The changes form part of a review instigated by a traumatic fortnight in which the bank saw savers queuing to withdraw their funds and was obliged to turn to the Bank of England as a “lender of last resort”.

Mortgage experts say that the product changes will not affect Northern Rock’s risk profile, which some maintain has been the source of its current difficulties.

The bank will continue to lend up to 125% of a property’s value, using a combination of secured and unsecured loans.

However, it will no longer offer a range of interest rates for people with different loan to value ratios.

Instead, one rate will apply for all loans of up to 95% of a property’s value.

The beleaguered lender is also withdrawing its one-and-a-half year fixed rate mortgages and will cease to offer the option for borrowers to receive “cash back” at the end of their fixed rate terms.

Not all news is gloomy for homeowners, as the Bank of England’s Monetary Policy Committee has voted to keep the base rate at 5.75% for October.

The rate was also kept on hold in September and this month’s decision was widely expected by economists.

Calls for a reduction in interest rates are coming from both the Confederation of British Industry CBI) and British Chambers of Commerce.

A rate cut would ease the problems in the global credit market whilst also helping UK homeowners.

The outlook is positive as the Consumer Price Index, fell to 1.8% in August, its lowest level for over a year, and below the government’s 2% target.

According to Ian McCafferty, the chief economic adviser to the CBI, “What’s not in doubt is that the next move will be down.”

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