Borrowers shouldn't roll with the Rock's punches

They've been 'encouraged' to switch lender but in reality they're trapped – and now the rates, and repossessions, are rising
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The Independent Online

Early this year I called on the Financial Services Authority (FSA) to investigate how the nationalised Northern Rock was treating its mortgage customers. The Rock had been deliberately keeping its standard variable rates high in order to "encourage" borrowers to remortgage to another provider once their fixed-rate deals came to an end.

I argued at the time that this was a flagrant contravention of the FSA's much-vaunted "Treating customers fairly" initiative – so has anything been done since?

No – for the simple reason that a lot of taxpayer cash is at stake in the Rock. The problem is, thousands of the bank's customers can't remortgage because they are on such a high loan-to-value that no other lender will want them. So they have had to sit tight and swallow the unfair rate medicine being handed out.

From the point of view of the Government, the tactic has worked a treat: the Rock is repaying its debt to the Treasury at breakneck speed.

But what about the human cost? The bank has been one of the quickest to repossess homes when people fall behind with their mortgage repayments. Last week, debt charity Credit Action reported that the Rock is twice as likely to move to repossession as other lenders. A borrower only has to miss a couple of repayments, it seems, and they will end up in the courts.

This has gone way beyond encouraging customers to remortgage. A cynic might suggest it is really about the Treasury grabbing what it can before the recession moves into full swing and prompts a further downward spiral in house prices. In its defence, the Rock says that it has more more defaults because more of its customers have very high loan-to-value mortgages – up to 125 per cent. But it's at least in part the Rock's fault for lending this cash in the first place. They have made their bed and they should lie in it.

Now things are set to get even worse: on 1 November, a tranche of the Rock's fixed-rate mortgage deals expire. Some customers will move from a rate of 3.99 per cent to 7.34 per cent. On a £200,000 loan, this equates to an extra £4,500 a year in repayments. Few can afford that and thousands could lose their homes.

If you are one of these unfortunate customers paying over the odds or being hounded for missed repayments – and you live in a Labour constituency – can I suggest that as well as seeking debt advice, you go to your MP's surgery and present this article and your mortgage statement. Ask why it is that a Labour government – through Northern Rock – is doing this to you?

Rock borrowers, make yourself heard. What is happening to you isn't fair – do not slip quietly into the night.

Societies, stop the self-love

Some building society chiefs have been enjoying the opportunity to lord it over the banks in the past couple of weeks. They believe the worm has turned and that the mutuality principle has proved itself. As one of them said to me last week, all the old societies that turned into banks have either been bought out or nationalised.

But before the sound of backslapping gets too loud, these bosses should remember that there is a lot wrong in their sector.

The merger of the Derbyshire and Cheshire societies with the Nationwide – which, as a Derbyshire member, I can tell you is being done with obscene haste and little genuine consultation – highlights how over-extended many building societies were. Some are barely lending at the moment and the remainder are charging high rates.

To date, the response of many building societies to the Bank of England interest rate cut has been to leave their own standard variable rates unchanged. The events of the past year haven't been a victory for the building society principle – rather an object lesson in incautious lending by banks and societies alike.

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