Northern Rock Crisis - why we should all be concerned

Filed Under Finance

“Your money is safe” says Adam Applegarth, the Chief Executive of Northern Rock, but with people queuing for hours out side Northern Rock branches, desperate to withdraw their savings, what he says and what his customers fear, are worlds apart.

One person I saw interviewed on the TV news just now had been trying to log in to her Northern Rock account for four days. She gave up and travelled 50 miles to her nearest branch to rescue her savings. With confidence in Northern Rock draining away as fast as the bank’s deposited funds, it is no wonder that its customers will go to great lengths to withdraw their savings as fast as they can.

If I had savings with Northern Rock, you would find me queuing outside one of their branches too.

So should we all be concerned about what is happening to Northern Rock?

Northern Rock is not one of the biggest banks, and is mainly just a lender or mortgages and personal loans. However it now supplies 9 percent of all mortgages in the UK so if it fails almost ten percent of all home owners in the UK will be affected in some form. That is a lot of people.

Other banks are being affected too - the Alliance and Leicester share price is down 16 percent today, for example. But its not just the banks who are seeing investors head for the hills - Barratt developments has lost almost 7 percent of its share price today too.

And that is the problem, or at least one of them.

Other banks, particularly those with a heavy exposure to the mortgage market are not immune to the problems that Northern Rock has experienced and could be next in line for a crisis of customer confidence. This is why the Alliance and Leicester shares are suffering so much.

Another bank sharing the fate of Northern Rock would have huge ramifications for the whole banking system in the UK.

So why the fall in the shares of Barratts, the house builder?

Well we are seeing mortgages rise already, but as I’ve said before, the sub prime market is going to find it harder and more expensive to arrange mortgages in the future. There can be no doubt about that.

Less availability of mortgages means less demand for houses and therefore a potential threat to the housing market.

We’ve published more about how the Northern Rock problems could affect you on MoneyHighStreet today. It is a fact that even if you haven’t got savings or a mortgage with Northern Rock, recent events will affect us all as widespread changes in lending practises are inevitable.