Northern Rock relaunched to boost mortgage market

Feb 23 2009 by Graeme King and William Green, The Journal

NORTHERN Rock will today be relaunched as a ‘good bank’ with around £14bn to boost mortgage lending.

Chancellor Alistair Darling is planning to announce the move today – marking a stunning turnaround for the bank a year after it faced going under.

Last month The Journal launched a campaign calling on the Government to give the Rock a role in restarting the crumbling British economy.

Whitehall officials last night revealed to The Journal that £5bn will be made available for lending this year, with up to a further £9bn from 2010 onwards depending on how much is needed. Newcastle Central MP and Treasury Select Committee member Jim Cousins hailed the move as the biggest vote of confidence in the North East for the last 30 years.

The new lending will be made on commercial terms to ensure it represents good value for money for the taxpayer, allowing Northern Rock to return to the mortgage market with a wide product range.

And to enable the bank to focus on new lending, its back book of mortgages will be managed separately – although the move will require approval from European Union competition chiefs.

New lending will be financed partly from deposits and repayments on the existing loan book and partly through an increase in the Government loan to Northern Rock and by lengthening the repayment schedule.

Nick Brown, minister for the North East, said: "The Chancellor is planning a statement for later on today.

"I believe it will be good news for the North East of England and in particular for Northern Rock. I think this is the right way forward and will enable us to put the bank’s past behind us and for it to take on a new role."

Newly installed chief executive Gary Hoffman, formerly of Barclays, is known to have been talking to the Treasury for many weeks about a strategic review and is scheduled to announce the bank’s 2008 figures on Tuesday, March 3. But the restructuring announcement is expected much more rapidly.

Chancellor Alistair Darling has already signalled that he believes Northern Rock should be encouraged to step back into the mortgage market. But any change would probably require approval from the EU, which oversees state aid granted to banks and other companies.