Northern Rock scraps mortgages

Northern Rock has now cut its mortgage range

Troubled mortgage lender Northern Rock has decided to scrap two-thirds of its 213 different mortgage deals.

It is the first change to its range of home loans since it had to be bailed out with emergency funds from the Bank of England last month.

At the time, Northern Rock admitted it would have to rein in its mortgage lending drastically, after expanding rapidly this year.

The information service Moneyfacts said the bank was trying to cut its costs.

"The move towards more of a one-size-fits-all product structure, by simplifying and streamlining products, brings the Northern Rock range more in line with the rest of the market," said a Moneyfacts spokeswoman.

"[It] is more of a sign that it is looking to reduce operational overheads, rather than anything more sinister," she added.

Personal loans

In the past week, nine banks or building societies have raised the interest rates they charge on personal loans.

It is part of a general trend due to higher bank base rates and the recent banking crisis that crystallised around Northern Rock.

Some personal loan rates have gone up by as much as four percentage points, with the Bradford and Bingley imposing this increase on certain loans.

The bank said it was the first such increase in 18 months and that it had responded to changed conditions.

It pointed to the five interest rate rises since August 2006, as well as the higher cost of borrowing money from other banks because of the recent lending crisis.

"The last nine months has seen a steady increase in the rates available for unsecured personal loans," said Lisa Taylor of Moneyfacts.

"Only four months ago, sub-6% rates were available, whereas today you would be hard pushed to get your hands on a rate of less than 6.9%.

"It comes as no surprise to see lenders increasing their lending margins in what has become a far more risky environment to do business," she added.

Other lenders raising their rates this week for personal loans - ones not secured on properties - have been the Northern Rock, the Cheshire and Derbyshire building society, Goldfish, Norwich Union, RAC Financial Services and the Norwich and Peterborough building society.

Mortgages

All mortgage lenders are now charging more for their money since the Bank of England's rate rises.

But the lending crisis between banks has all but closed the burgeoning niche market for lending to so-called sub-prime borrowers in the UK, making loans to these borrowers either very expensive or simply impossible to obtain.

At the same time, certain mortgage deals for more creditworthy borrowers, which track either the Bank of England's base rate or the inter-bank lending rate, have also become more expensive.

One knock-on effect has been to make savers' rates more attractive as well, partly because some lenders have been keen to attract savers' funds instead of borrowing from other banks in the currently restricted financial markets.

Last month, some lenders briefly raised their interest rates on certain accounts, typically one-year bonds, to 7% a year.

The best rates for savings accounts are now around the 6.4% mark.