Building societies attack Treasury's plans for the Rock

Building societies will be unfairly disadvantaged by the Government's plan to split Northern Rock in two, the mortgage lending industry has told European industry regulators.

The Treasury's proposal to split the Rock, which was nationalised last year after coming close to collapse, into a "bad bank" containing poorly performing mortgages and a "good bank" with better assets was uncompetitive, the Building Societies Association (BSA) said.

The BSA complained that Northern Rock would be unique in the mortgage market in being able to offer new loans without worrying about the impact of bad debt on previous advances. "[It] is likely to be able to lend freely, without having to absorb losses from non-performing loans, unlike all of its competitors in the UK mortgage market," the BSA said.

The European Commission is examining the Government's plans for Northern Rock. The BSA has asked it to require the bank to pay a yearly fee to the Government for holding its bad assets, and for state guarantees for Northern Rock to be scrapped.