1st October 2014
Borrowers who took out Northern Rock’s infamous mortgages of 125% before the credit crunch are now being punished with sky-high interest rates of up to 13%.
The failed bank’s Together mortgages, which it sold prior to the credit crisis, comprised a conventional mortgage and a personal loan worth up to 125% of the property’s value.
This meant that borrowers were in negative equity from the outset, with debts worth more than the value of their properties.
Afterthe crisis that led to its nationalisation, the Government sold off the lower-risk part of the mortgage book to Virgin Money and moved the higher risk loans, including many of the historic Together mortgages, into a new company, Northern Rock Asset Management.
MoneyMail has reported that one borrower who switched the mortgage element of her Together loan to a new lender is now being charged 12.79% on the personal loan element which she cannot move.
It said that Karen Hazlett, a 44-year-old hairdresser took out a Northern Rock mortgage in 2006.
After a relationship break-up and with house prices rising she borrowed a total of £83,000 on a house worth £75,000— a £67,500 mortgage and a £15,500 personal loan.
She paid interest at 5.89%, which dropped to 4.79% when she moved onto the bank’s standard variable rate.
But after interest rates nose-dived, Karen switched her mortgage to a cheap fixed rate with another lender. Then Northern Rock Asset Management wrote to her to say it was more than doubling the interest rate on the personal loan component cent to 12.79%.
Monthly payments soared from around £90 to £164. With rates from competitors as low as 4%, she has tried to move the loan, but she keeps getting turned down.
She understands that it is her responsibility to pay back the loan, but feels it is unfair that she is being charged such a high rate by a Government-owned bank because she is a mortgage prisoner.
A spokesman for UKAR, the parent company of Northern Rock Asset Management told MoneyMail that it has a responsibility to the British public to ensure that the taxpayer is paid back for the financial support the bank received during the credit crisis. It said it does everything it can to help when customers are in financial difficulty, but it cannot offer better deals to customers just because it is state owned.