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£14bn Rock lending will be sensible, says Darling
Paul Waugh, Deputy Political Editor23 Feb 2009
Alistair Darling denied that the Government was fuelling "ridiculous" mortgages today, despite unveiling £14 billion of lending by Northern Rock.
The Chancellor said the state-owned bank would cap loans at up to 90 per cent and stressed most would be made at "sensible" levels.
But as Mr Darling outlined wider plans for a third government bank bailout, he and Gordon Brown were criticised by the Conservatives for failing to stop the explosion of unsustainable mortgages in the past decade.
As he headed for a Cabinet "away day" in Southampton, Mr Darling announced the return of Northern Rock to the lending market as part of measures being introduced this week to "rebuild the banking system for the future".
He said institutions would be split into "good banks" and "bad banks", separating future business from toxic loans that were difficult to sell.
The Bank of England is expected to confirm its move this week towards "quantitative easing" - the so-called printing money option - by providing £150 billion to buy bonds and gilts from banks. The Treasury is also to announce plans to use taxpayers' money to insure up to £500 billion of bad bank debts.
Newcastle-based Northern Rock is expected to take on about £5 billion in mortgages this year and up to £9 billion from 2010. Mr Darling told Radio 4's Today programme: "Northern Rock are not going to do 100 per cent. They had their fingers very badly burned and, rather more importantly, a lot of their customers had their fingers very badly burned.
"They can go up to 90 per cent but they will have to take that judgment on the individual circumstances."
"Most of the mortgages will be at a sensible level I have made it clear, and the Prime Minister made it clear at the weekend, that I really have severe doubts about the 100 per cent-plus loans that were made available. In this day and age that is ridiculous."
Northern Rock's lending will be funded by slowing down £27 billion of repayments to the taxpayer of the remaining bail-out cash.
The Chancellor said the move should be seen as part of the wider package: "It is important that people have this in perspective and don't say 'This is the one thing you need to do and it will all make a difference'."
Shadow chancellor George Osborne said Northern Rock mortgage lending would not be a silver bullet to resume lending in the economy.
"This is a huge U-turn, a change of direction for Northern Rock and the Government, but it's not going to make a massive difference," he said.
Reader views (7)
Robert from Thailand, and Terry from France, illustrate the problems with the treasury's spin campaign.
its led people to believe that inappropriate lending, and not the funding model were to blame, and as such improved lending policies will fix the problem.
whether the loan criteria is set at 70% or peoples solvency is assessed more rigoursly, will make no difference as Northern Rock did not suffer a spate of mortgage defaults. Borrow Short, Lend Long was the issue, and nothing to do with whom they lent to.
- Scott, London, 23/02/2009 14:30
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spin, spin, spin...
Northern Rock's problems had little to do with making bad loans, but the collapse of the wholesale funding market.
by making claims that lending will be sensible, he gives in to mass pandering and implies that a whole heap of defaults caused Northern Rock's problems. which it plainly did not.
when will the government start treating people as grown up adults, and speak in plain truths?
- Scott, London, 23/02/2009 14:25
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When these mortgages are approved, will they be bundled up and then divided into incomprehensible financial products that the FSA and Rating Agencies will pretend to understand. Will other financial institutions then buy them based on the rating provided, but with little understanding of the true risk of the product? Has anything changed or are the clueless being led by the brainless in short-term thinking.
- Alex C, London, 23/02/2009 13:09
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Sensible will include ?
No bonus for those who sell the mortgage?
A sensible multiplier of income?
No self -certification?
A genuine deposit and not one taken from another lender or through a credit card?
An assessment of the solvency of the person taking the mortgage?
No mortgages for buying to let?
Etc etc
I have my doubts that the government will put any of these measures in place - We will head for the same mess
- Terry, Hennebont france, 23/02/2009 12:56
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In my view, the word `sensible' is light years from the policies of Darling and McMitty.
- Ted, London, 23/02/2009 12:50
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I might have felt more comfortable if the ceiling were at 70% but as things stand this smacks of voter appeal rather than prudent financial management. Business as usual I suppose.
- Robert, Phuket Thailand, 23/02/2009 11:36
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And Mr Darling's record on sensible lending is .... ?
- Marianne, SW France, 23/02/2009 10:14
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