Mortgage customers at Northern Rock have had an uncertain few months. After hearing last September that the bank was on the verge of going bust, some dared to wonder whether they might be one of the few beneficiaries of the crisis – perhaps allowed to walk away from a large chunk of their home loan. Alas, this isn't exactly how bank insolvencies work. However, there may well have been something to be gained for existing mortgage customers, had the bank been taken over by a strong and financially solvent rival bank.
Northern Rock's eventual nationalisation, however, was far from ideal. Within days of the Government's announcement, the bank declared that it would not be offering new mortgages to existing customers once their current deals came to an end.
In better times, this may not have been such a tragedy. But at a time when lenders are tightening their belts and becoming ever more picky about who they offer a loan to, it could be bad news.
Remortgaging is no longer a straightforward business – even for those with a decent amount of equity in their property. But for the thousands of Northern Rock customers who took out home loans worth 90, 100 or even 125 per cent of their property's value, it is going to be very difficult indeed to find a new lender to take them onto their books once their current deal expires.
Although this week's news of Lloyds TSB's tie-up with Northern Rock may have sounded like a reprieve, it will mean nothing for all those Northern Rock customers who have little or no equity in their homes. Lloyds has effectively agreed to offer fee-free mortgages to all Northern Rock's best customers – those who have at least 20 per cent equity in their home. For these people, the Lloyds tie-up may well prove to be great news. No valuation fees, no legal fees, no application fees – and a rescue from the jaws of the Rock's punitive standard variable mortgage rate of 7.49 per cent.
As well as being no use for those with proportionately large loans, it strikes me that the Lloyds deal will also not do much good for the Government either. While it will help them reduce the size of their mortgage book, it promises to leave them with a bag full of the riskiest business.
If those who are left in negative equity at the end of their deal cannot find any other lender to take them on, they'll be forced to stay with the Rock and see their mortgage payments leap by 25 per cent or more.
For many, that may be enough to push them over the edge, forcing them to default on their loan.
Surely the Government would have been better striking a deal with a lender that agreed to take both the good and the bad.
There's surely no way it can now come to a similar arrangement for those who are left out – but if it sticks to its guns and refuses to let these people remortgage, it may be left with no alternative than to start repossessing hundreds of properties. That would not be great PR for an already embattled Alistair Darling.
Given that it has struck a deal to help its wealthier customers, Northern Rock must now do the honourable thing, and agree to offer new deals to all those who can't find a bank that will accept them elsewhere.