Rock borrowers face rate rise – or repossession

As many as 35,000 borrowers with the nationalised bank Northern Rock will have to find hundreds of pounds extra each month to meet their mortgage repayments, or face repossession.

The situation has arisen because Northern Rock's two-year fixed-rate mortgage deals – sold at the height of the housing-market boom in 2006 – are coming to an end. Overnight, from 1 November, hard-pressed borrowers will be thrust on to the Rock's standard variable rate, which stands at well above the industry average at a whopping 7.34 per cent. Borrowers who are signed up to the two-year fix could be paying as little as 3.99 per cent.

As a result, according to Moneyfacts.co.uk, the financial information service, a borrower with a £200,000 home loan will see monthly repayments shoot up from £1,055 to £1,430, an increase of £375. Over the course of a year this equates to a staggering £4,500 rise in mortgage repayments. Other borrowers, who have a fix at a higher interest rate, will be slightly less affected but nearly all can expect the amount they repay to rise by more than £100 a month.

"These two-year deals were popular, and the rate change could hit between 21,000 and 35,000 borrowers," said Darren Cook of Moneyfacts. "Given the economic climate some borrowers may give up the ghost, hand over their house keys and let the Rock repossess."

In normal times, Rock borrowers, coming to the end of a fixed-rate deal, would simply move to another lender or roll-over a fresh home loan. But these are not normal times. Lenders are unwilling to lend to anyone who doesn't have lots of equity in their home. What's more, borrowers who remain with the Rock face the added pressure that it has deliberately kept its standard variable rates high in order to persuade customers to move to other lenders – all with the idea of freeing up cash to repay the estimated £11.5bn it still owes to the Government.

Hopes of some relief for Rock borrowers, following the Bank of England base-rate cut from 5 per cent to 4.5 per cent on 8 October, were soon dashed when the lender chose to pass on just 0.15 per cent of the cut to customers. And the continuing crash in UK house prices – down by nearly 13 per cent, year on year, according to the Halifax and Nationwide – is making other lenders much less willing to throw Rock borrowers a lifeline.

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