Rock defends ‘buy and rent’ company
Jan 21 2008 by Adrian Pearson, The Journal
NORTHERN Rock bosses set up a company to allow them to buy customers’ repossessed homes and rent them on at a profit for the bank.
Homes bought with a Rock mortgage, sometimes criticised as high risk loans which offer too much cash for too little security, are targeted by Kielder Property Management if they are repossessed.
The news came as a row broke out between Northern Rock bidders over whether Virgin boss Richard Branson has persuaded the Prime Minister to support his buy-out offer during a Government trip to China.
The Kielder company was formed on June 27 last year – around the same time concerns were being raised that the emerging credit crunch could lead to more house repossessions.
Kielder was set up on the day Northern Rock announced what was effectively a profit warning which would include possible rate rises for mortgage holders.
The Journal has discovered Kielder Property Management is run from Northern Rock’s Gosforth headquarters.
Documents registered with Companies House also revealed the property business is owned by Northern Rock and Kielder’s three directors are all managers at the bank.
And while only two properties have been bought up since it started, the close proximity of the two businesses has alarmed some MPs.
Yesterday Northern Rock insisted the process was fully transparent.
But concerns have been raised over whether a bank should be advising on mortgages of up 117% in one department, while another part of the company is preparing to make a profit from any repossession if the risky loans fall through.
Newcastle Central MP Jim Cousins defended the bank for “doing what a lot of American banks are already doing and certainly a lot of British banks will at least be considering”. Mr Cousins, who sits on the Treasury Select Committee said Northern Rock should not be singled out for blame, but admitted there were some ethical concerns.
“These are areas we will have to look at because if the housing market gets worse there will be more cases where people have to be protected, possibly even from their own actions.
“It is distinctly uncomfortable and I think we need to see measures introduced to ensure people receive better advice.”
A spokesman for Northern Rock yesterday told a national newspaper that Kielder was formed “to hold possession properties to let in the rental market.
“Possession properties attract a stigma and can be valued at less as a result...
“Anything that happened would have been fully and transparently disclosed.”
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