Northern Rocks financial guarantee doubles

The treasury has extended the guarantee at the request of the lender. 100% Mortgages lender Northern Rock needs the funding to survive into the New Year. The Treasury’s announcement means that most of Northern Rock’s balance sheet is now covered by government guarantees.

According to Mervyn King, the governor of the Bank of England, the additional guarantees amounts to an additional 30% of the Northern Rock’s balance sheet.

Northern Rock ran into difficulties during the recent credit crunch.  The lender is renowned for lending high risk 100% mortgages that have fuelled the crunch. Unlike most banks, which rely on savers’ deposits to fund mortgages and other loans, Northern Rock borrowed heavily in credit markets, to offer these high borrowing levels of 100% mortgages.