David Prosser's Outlook: No rush to Northern Rock's New Year sale

>Thank heavens for small mercies; No ho, ho, ho on the High Street; Mortgages headthe wrong way
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The Independent Online

So D-Day for Northern Rock then – but did that D stand for damp squib? If the Treasury was hoping the queue of potential buyers for the beleagured mortgage bank yesterday would rival those terrible queues of depositors trying to withdraw their money, it was sorely disappointed. While some of the bidders for Northern Rock filed their expressions of interest ahead of the deadline the lender had set for submissions, others bided their time.

It's not as if Northern Rock and the Treasury are in a position to call the shots – they will take offers from the likes of JC Flowers whenever they get round to filing them. Beggars can't be choosers, after all.

Still, there are good reasons to bring the sale process to a head as quickly as possible. Above all, at the rate of interest the Bank of England is charging Northern Rock for the £20bn lent so far – believed to be 7.25 per cent – the lender cannot possibly operate profitably. So every day the current impasse continues, the bank's financial position is deteriorating further.

Potential buyers are in a strong position. In an ideal world, the Government would like to find a buyer capable of repaying Northern Rock's debt quickly without doing too much damage to jobs. Avoiding those terrible private equity bad guys – who no doubt plan an asset stripping – would be a bonus. And then there's Northern Rock shareholders to satisfy too (ministers don't want another Railtrack).

Unfortunately, the world is far from perfect. It is unlikely to be possible to satisfy all of these desires. At the very least, the Treasury faces some difficult decisions about that £20bn – like whether to accept a long period of repayments, for example, or whether to write off some of the interest.

Nor is there any prospect of a speedy resoluton to this affair. Yesterday's deadline marks only the first waypoint in a long and difficult journey.

Thank heavens for small mercies

The criticism financial regulators have taken over the Northern Rock debacle is a reminder that it's no fun working for a watchdog. Do your job well and no one notices the work that's going on – let alone thanks you for it. Make a mistake and the world and his wife are on hand to explain where you messed up.

In fact, we should be reasonably grateful for the system of financial regulation in place in the UK – and particularly that many of its most glaring gaps have now been plugged.

Take mortgage regulation, for example, introduced three years ago to protect borrowers from rogue home loan advisers. Since then, UK borrowers have been protected from the sort of dubious sales practices that lie behind the US sub-prime crisis.

Now, belatedly, the US wants to catch up, with the House of Representatives voting late on Thursday to introduce regulation of mortgage brokers. Under its proposals, still to be ratified by the Senate, mortgage brokers would have to be licensed and there would be a ban on financial incentives likely to encourage such intermediaries to push borrowers towards unsuitable products. Lenders would also have to show that they had investigated whether borrowers were able to repay home loans before selling them a mortgage.

This is the kind of commo sense British borrowers now take for granted. The lack of such protections in the US until now goes a long way towards explaining why two million borrowers now face losing their homes. In many cases they were sold adjustable mortgages they did not understand and which they had little prospect of being able to pay once a cheap-rate introductory period expired.

No ho, ho, ho on the High Street

How many shoppers will be in London's West End to witness the switch-on of Regent Street's Christmas lights on Tuesday? Retailers hoping for another buoyant Christmas may be disappointed by the turn-out; there is mounting evidence that, this festive season, Santa may not deliver everything on the High Street's wish list.

Anxiety about the Christmas outlook for retailers has reached such heights that John Lewis's latest weekly sales figures spooked many analysts yesterday. The department store chain, the retail industry's biggest success story of 2006, said its sales were up by 1.8 per cent last week, well below the growth achieved in the same week last year.

The figures prompted a series of warnings about a Christmas downturn – so much so that John Lewis itself embarked on a damage limitation exercise, letting it be known that it remained very positive about its prospects for the festive season and that it planned to release much more upbeat figures over the course of the weekend.

Maybe so, but if John Lewis enjoys a bumper Christmas, it's likely to be in the minority amongst retailers. The retail sales figures published on Wednesday, which showed the first monthly drop in consumer spending since January, offered a taste of what is to come. They also reflected warnings from retailers including French Connection, Next and WH Smith, which have all expressed concern about the outlook for Christmas in recent weeks.

In many ways, it's a surprise that the retail slowdown has taken this long to materialise – or, to put it another way, that consumer confidence has held up so well for so long. The list of reasons why consumers should be feeling the squeeze is never-ending: from five interest rate rises in a year to soaring fuel prices to warnings of falling house prices. Yet until now, consumers have been prepared to keep on spending, and almost every survey on confidence has recorded their resilience.

Retailers have done their bit, of course. Many shops have been running aggressive discounting campaigns since the summer, dragging customers in with ever lower prices. But the price cuts can only go on for so long and sooner or later, that fact that shoppers have less money in their pockets is bound to hit home.

Nor can the Bank of England play Santa. An interest-rate rise last week would have given retailers a boost and there is still December's meeting of the Monetary Policy Committee to come. But it emerged on Tuesday that inflation is now running slightly ahead of the Bank's 2 per cent target, leaving the MPC with little room for manoeuvre.

In the absence of an early Christmas present from the MPC, the retail trade must box clever this season. Gimmicks such as the traffic-free day planned for central London on 1 December will help. But only so much.

Mortgages headthe wrong way

Here's one more reason why consumers may soon be feeling gloomier still. The cost of your mortgage may be set to rise irrespective of what happens with base rates. Yesterday, Standard Life Bank announced a 15 basis-point increase in its standard variable rate, the default interest rate paid by its mortgage borrowers.

Standard Life said it was raising the cost of borrowing despite the lack of any base rate increase because of worsening conditions in the credit markets. In other words, the cost of funding mortgages has increased sharply in recent months.

On its own, the hike is not too important. Standard Life has a tiny share of the lending market and most of its borrowers are not on the SVR – the increase will therefore affect a small number of customers.

Still, if Standard Life finds itself squeezed to this extent, other lenders – including much larger banks and building societies – must also be feeling the squeeze. In which case, many more borrowers could also find themselves hit by an unexpected increase in their repayments each month.