Northern Rock 100% mortgages lender report prompts reforms

The government is coming under pressure to overhaul the banking system following a report into the Northern Rock crisis.

 The Commons Treasury committee said the Financial Services Authority was guilty of a “systematic failure of duty”.

The report argued the FSA - the UK’s finance watchdog - should have spotted the bank’s “reckless” business plan.

Unlike the great majority of UK banks, 100% mortgages lender Northern Rock relied upon borrowing funds from the wholesale money markets to fund its mortgage business, rather than the usual method of using savers’ deposits.  It has fought to gain a larger share of the market with its 100% mortgages product the together mortgage.

Yet when the credit crunch hit, Northern Rock suddenly found it could not secure the cheap funds it needed. Since the crunch it the lender has all but stopped lending reducing its income multiples and increasing its credit score to borrowers wishing to secure a 100% mortgage.