Around 85% of Northern Rock borrowers, some 476,000 people, will have their mortgages switched to the ‘bad bank’ part of the new structure and concern has grown that they will be unable to remortgage to other lenders as they will not meet the criteria.

Of particular worry are borrowers who took out the bank’s Together mortgage, which
offered up to 125% of the property’s value. Since property values have fallen, many of
those borrowers have fallen into negative equity and subsequently do not qualify for
other lenders’ mortgage deals. At a meeting of the House of Commons Treasury Select Committee last week, MPs heard that the Government has no plans to establish a separate process to help such borrowers.

Jim Cousins, Labour MP for Newcastle Upon Tyne Central, said it was not in the
interests of the taxpayer or the individuals concerned that they end up being ‘prisoners’
of an institution offering them a ‘poor’ mortgage  deal and asked what was being done to
protect the interests of borrowers not able to remortgage away to other lenders.

Keith Morgan, head of wholly owned investments for UK Financial Investments,
the body set up to manage State stakes in government-owned banks, said: “All of our
wholly owned companies have to observe the standards of Treating Customers Fairly and
it is one of their regulatory responsibilities to do that. Unfair pricing practices would fall
foul of this.”

Jule Wilson, spokesperson for Northern Rock, said it disputed the ‘bad bank’ tag, as
90% of borrowers with Northern Rock Asset Management were not in arrears and said
the whole of the market would be open to borrowers looking to remortgage away from
the lender in exactly the same way it is to customers with other lenders.

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She added: “The two new parts of Northern Rock are separate companies that will operate
independently and be able to set their own SVRs and criteria, a fact that people have
wrongly assumed will not be the case.”

The uncertainty over the future of borrowers with Northern Rock Asset Management
came as the bank announced its Q3 results  which showed that gross mortgage lending
rose to £1bn in the three months to 30  September and the rate at which mortgage
arrears are growing has slowed.

The lender stated in its results that it is  committed to working with its customers to assist those who may be facing financial difficulty and that it continues to invest a lot of effort in its approach to debt management  and to providing the best possible support it can in all circumstances.