Northern Rock has undergone a Damascene conversion over its treatment of mortgage customers in arrears, a debt charity has said.
The lender, which has been roundly criticised for keeping its mortgage rates punishingly high and repossessing a disproportionately large number of homes, is overhauling the way it approaches bad debts.
"We are seeing big changes at the Rock," said Malcolm Hurlston, chairman of the Consumer Credit Counselling Service (CCCS). "Before, they took a tough approach with borrowers in arrears but now there is a road to Damascus scenario – they are being more sympathetic."
In a summit last week with leading debt and housing charities, including the CCCS, Credit Action, Shelter and the Money Advice Trust, Northern Rock set out its plans for stepping up help to those facing repossession.
"We are looking to work through problems with our customers on a case-by-case basis. Where appropriate, we will offer payment holidays, reduced monthly repayments and conversion to interest-only mortgages," said Jemma Rundle, a spokeswoman for Northern Rock.
In addition, Rock debt advisers will call people who are in arrears to see what extra help can be offered, rather than simply writing letters to them. This follows the spirit of a new mortgage-industry protocol which comes into force on Wednesday, setting better standards for how homeowners facing repossession should be treated by lenders.
It is believed that the Rock management could be feeling the political heat after a barrage of negative headlines over its attitude to people facing repossession. Despite Treasury ministers insisting that the Government only has an "arm's length" relationship with the Rock, the bank's new chief executive, Gary Hoffman, may be keen to stop the negative publicity and so please his new political masters.
Northern Rock may also be concerned by the latest disturbing signs from the property market, starkly reminiscent of the early 1990s recession. The Rock and four of its biggest mortgage rivals have admitted that they have seen a dramatic rise in the numbers of people voluntarily giving up their properties because they are unable to meet their mortgage repayments.
Beccy Boden Wilks from the debt charity National Debtline said a surge in voluntary repossession was a suresign of mounting desperation: "Perhaps they think by handing over their keys they will at least ensure that the property is sold at auction by the lender and that it gets the best possible price. They figure that if they leave it, then the price will fall further and they could be left still owing part of the mortgage."
But entering voluntary repossession is no solution, said Ms Wilks: "It can take months to sell the property and it could be at a knockdown price, so there could be a shortfall to pay. The lender can come back years later and ask for its cash."
And it's not just over repossession that the Rock – led by chairman Ron Sandler – seems to be having a change of heart: "They have told us that they will re-examine the individual voluntary arrangements they have previously rejected," Mr Hurlston said.
In an IV, the debtor agrees to repay a set amount a month over, say, five years. The debtor writes off up to 75 per cent of what they, but the lender, who must agree to lower monthly payments, gets the remainder..
Ms Rundle confirmed that the Rock would look at IVA requests on a "case-by-case basis" but denied that it had dismissed previous applications from distressed borrowers out of hand: "We have always tried to work with customers who find themselvesin difficulty."