Northern Rock customers have received notification of the bank’s split – and which bank they fall into, so what does it mean for existing account holders with the bank?

Towards the end of last year there was much speculation about the future of Northern Rock and talk of it being split into a ‘good’ and a ‘bad’ bank. The media rumours said that the good bank would be well-capitalised and hold most of the savings products as well as a few ‘safe-risk’ mortgages and surmised this would probably be privatised and sold to the highest bidder; conversely, the bad bank would be the existing company and stay with the government until the mortgages were either remortgaged elsewhere, paid off or at worst, repossessed.

On 1st January 2010, Northern Rock was indeed restructured into two companies.

This week, existing Northern Rock customers started to receive their letters confirming whether they were in Northern Rock plc – the well-capitalised bank – or Northern Rock (Asset Management) plc.

The FAQs in the letter included a mention to the media’s furore:

“Is Northern Rock (Asset Management) plc a ‘bad’ bank?

The terms ‘good’ bank and ‘bad’ bank have been widely used in press reports and these terms are normally used to reflect the quality of loans. Over 90% of the mortgages which remain with Northern Rock (Asset Management) plc are performing well and are not in arrears. The description of Northern Rock (Asset Management) plc as a ‘bad’ bank is not accurate.

Customers will continue to receive an excellent level of service from both companies and having an account with Northern Rock (Asset Management) plc does not impact on a customer’s credit rating. A customer’s ability to obtain credit is based on a range of criteria which will vary between lenders.”

Yet the letter went on to say that for those customers with mortgages held with the new Northern Rock (Asset Management) plc, there would be no new products offered to them. When their existing mortgage deal comes to an end, they will either need to remain on the Northern Rock standard variable rate (SVR) or remortgage to another lender.

All existing account terms and conditions will be honoured and for those with the new Northern Rock plc, it is business as usual.

For Laura Wilson of Ellesmere Port, on the Wirral near Liverpool, the notification that her mortgage has been put into the Northern Rock (Asset Management) plc pot has been an unwelcome one:

“I’ve held my mortgage, never missing a payment – in fact overpaying – for almost five years; I’m on a fixed rate deal with Northern Rock and when it comes to an end, I’m worried no other lender will now provide me with such an income multiple.

“Mortgage lenders rarely take into account how low your monthly outgoings might be, and as I keep mine fairly low, I can afford to spend a higher proportion of my income on my mortgage repayment. When I applied, nobody other than Northern Rock would give me a mortgage.

“I do prefer a fixed rate deal, which is what I’m on now. When my deal ends, my payment would go down if the Bank of England base rate stays the same as it is now. In the current economic climate, no mortgage lender is likely to give me a mortgage. I’m now self-employed, I can still afford my mortgage but would want to remortgage to a fixed rate deal. As it is, I’m going to be stuck with a variable rate mortgage and open to every interest rate increase – and this is a real worry. There must be plenty of people like me.”

Richard Branson’s Virgin Money last week bought a provincial bank with the licenses required to sell mortgages and savings in the UK. The Daily Telegraph reported on Monday that Virgin Money has made an approach to bid for the new Northern Rock bank.

Mortgage advisors all over the UK will be no doubt receiving queries from Northern Rock customers for some time, and for those with the Northern Rock (Asset Management) plc bank, mortgage advisors will learn how other mortgage lenders are responding to the news and how their criteria works.

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