Home loans shake up after Northern Rock crisis

Changes are afoot in the loans industry at the moment. The credit crunch and recent difficulties experienced by Northern Rock is starting to have an effect.

I’m hearing rumours that two lenders are withdrawing from the loans market altogther. I can’t say which ones at the moment as I’m not sure if they have announced the situation. Both are “off balance sheet” which means that they work in the same way as Northern Rock - they borrow money at one rate and then lend it at a higher rate.

We’ve seen the impact that this business model has on Northern Rock (whose shares are still in the doldrums). The financial institutions behind these two lenders are US based and have sustained heavy losses in the credit crisis.

So two mainly sub prime lenders are exiting from the UK loans market.

But that isn’t all. Mortgages PLC are not going to lend to “heavy adverse” applicants any more and are reducing the acceptable loan to values of their other sub prime mortgage products. Even their near prime and self certification mortgages will have their maximum LTV’s reduced from 90 percent to 85 percent.

I mentioned a few days ago that the Northern Rock crisis will affect many more people than just its customers.

We’re seeing the start of a tightening of lending criteria. Those with impaired credit histories are going to find it harder to borrow and are going to have to borrow less.