Rock looks to start lending again

Jan 20 2009 By William Green

Northern Rock has been thrust into the heart of the Government’s economic rescue package.

Last week The Journal urged ministers to give the Newcastle-based bank a role in stimulating lending to families and ministers.

And yesterday Chancellor Alastair Darling cleared the way for Northern Rock to begin lending again after months in which it has tried to shift mortgage-holders off its books. He also changed demands brought in when the bank was part nationalised.

Mr Darling said it was no longer “the right thing to do” to drive consumers from Northern Rock. He said: “We are talking to the management about the next steps and when we are ready to say something we will.”

The Chancellor yesterday told MPs he was now considering how Northern Rock can best support “prudent” lending to creditworthy customers who need mortgages, but cannot afford deposits of 25%.

Northern Rock also confirmed it was actively looking at increasing lending as the bank and ministers continue a review of its business plan. The Government also eased requirements on the bank to rapidly repay a multi-billion pound taxpayer loan that had forced it to redeem mortgages. Existing customers on fixed-rate mortgages had been encouraged to find deals with other lenders. But they could now switch to lower rates at the Rock.

The original plan had been approved in conjunction with the EU amid rules over state aid to private companies. And Brussels bosses will still need to rule on the new plan.

The developments formed part of a new banking package unveiled by the Government just months after a £37bn bailout for financial institutions.