By Sumeet Desai
LONDON, Feb 22 (Reuters) - Britain's state-owned Northern Rock bank plans to increase its mortgage lending by up to 14 billion pounds over the next two years, a Treasury official said on Sunday.
The plan to get Northern Rock lending again is part of a series of initiatives expected this week designed to get credit in Britain flowing again after the economy shrank by 1.5 percent in the last three months of 2008.
'The government is implementing a new business strategy for Northern Rock that will see it make a significant return to the mortgage market,' the official said.
British house prices have slumped by nearly 20 percent in the last year as mortgage lending has all but dried up in the face of a global credit crunch that has put many of the world's major economies into recession.
Northern Rock was nationalised last year, becoming one of the first victims of the credit squeeze, when news that it had to seek emergency funding from the Bank of England triggered Britain's first bank run in more than a century.
The lender's business plan submitted to the European Commission at time of its nationalisation required it to reduce its balance sheet and borrowing from the government.
The Treasury official said that plan was now well ahead of schedule with the government loan standing at around 9 billion pounds at the end of December 2008, down from 27 billion pounds a year earlier.
As a result, Northern Rock is expected to undertake around 5 billion pounds of new mortgage lending in 2009 and up to 9 billion pounds from 2010 onward depending on market demand and funding, the official said.
Changes will also be made to how Northern Rock is organised so that the back book of mortgages is managed separately to other business, so that the company can focus on growing its new lending. This will be subject to European state aid approval.
The official said that the new lending would be financed partly by deposits and repayments on the existing loan book and through an increase in the government loan to Northern Rock and by lengthening the repayment schedule, the official said.
The new lending would also be made on commercial terms and will allow Northern Rock to return to the mortgage market with a wide range of products.
Before it ran into trouble in 2007, Northern Rock had pursued an aggressive strategy to win market share that many blame for helping inflate a bubble in Britain's housing market that has since turned to bust.
It had offered loans of more than a 100 percent of a property's value and at larger-than-usual multiples of a borrower's salary.
Writing in the Observer newspaper, however, Prime Minister Gordon Brown said he had asked the Financial Services Authority watchdog to look into how it should control new mortgages for more than 100 percent of a home's value.
He said that in future that loans should be made on prudent and careful terms, and be available to all borrowers, not just those with large deposits.
((Editing by Gary Crosse)) Keywords: BRITAIN NORTHERNROCK/LENDING (Reporting by Sumeet Desai; Reuters Messaging: sumeet.desai.reuters.com@reuters.net; +4420-7542-7708) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
LONDON, Feb 22 (Reuters) - Britain's state-owned Northern Rock bank plans to increase its mortgage lending by up to 14 billion pounds over the next two years, a Treasury official said on Sunday.
The plan to get Northern Rock lending again is part of a series of initiatives expected this week designed to get credit in Britain flowing again after the economy shrank by 1.5 percent in the last three months of 2008.
'The government is implementing a new business strategy for Northern Rock that will see it make a significant return to the mortgage market,' the official said.
British house prices have slumped by nearly 20 percent in the last year as mortgage lending has all but dried up in the face of a global credit crunch that has put many of the world's major economies into recession.
Northern Rock was nationalised last year, becoming one of the first victims of the credit squeeze, when news that it had to seek emergency funding from the Bank of England triggered Britain's first bank run in more than a century.
The lender's business plan submitted to the European Commission at time of its nationalisation required it to reduce its balance sheet and borrowing from the government.
The Treasury official said that plan was now well ahead of schedule with the government loan standing at around 9 billion pounds at the end of December 2008, down from 27 billion pounds a year earlier.
As a result, Northern Rock is expected to undertake around 5 billion pounds of new mortgage lending in 2009 and up to 9 billion pounds from 2010 onward depending on market demand and funding, the official said.
Changes will also be made to how Northern Rock is organised so that the back book of mortgages is managed separately to other business, so that the company can focus on growing its new lending. This will be subject to European state aid approval.
The official said that the new lending would be financed partly by deposits and repayments on the existing loan book and through an increase in the government loan to Northern Rock and by lengthening the repayment schedule, the official said.
The new lending would also be made on commercial terms and will allow Northern Rock to return to the mortgage market with a wide range of products.
Before it ran into trouble in 2007, Northern Rock had pursued an aggressive strategy to win market share that many blame for helping inflate a bubble in Britain's housing market that has since turned to bust.
It had offered loans of more than a 100 percent of a property's value and at larger-than-usual multiples of a borrower's salary.
Writing in the Observer newspaper, however, Prime Minister Gordon Brown said he had asked the Financial Services Authority watchdog to look into how it should control new mortgages for more than 100 percent of a home's value.
He said that in future that loans should be made on prudent and careful terms, and be available to all borrowers, not just those with large deposits.
((Editing by Gary Crosse)) Keywords: BRITAIN NORTHERNROCK/LENDING (Reporting by Sumeet Desai; Reuters Messaging: sumeet.desai.reuters.com@reuters.net; +4420-7542-7708) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.