As we mentioned last week, Northern Rock is reportedly due to split up into two separate banks within the next few months or so, and these two banks have been dubbed ‘the good’ and ‘the bad’ banks.

The ‘good’ bank is to contain all the savings accounts and the less risky mortgage loans and investments, and will be sold off.  The ‘bad’ bank section will include all the riskier mortgages and loans.

If you are in the position of having your mortgage put into the ‘bad’ section of the bank then it is highly probable that your mortgage will be effectively locked into the bank.  This is because unless the property values increase somewhat, there is little chance that any other lender will be looking to attract these customers.  There is therefore a chance you could be left on a less competitive interest rate than others in the wider mortgage market and would struggle to move your mortgage without increasing the equity or money you put into the property.

As many in the media are currently speculating, it will be very interesting indeed to see just how many and the value of the mortgage book that is left with the Government in this ‘bad’ bank.

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