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Last Updated: Thursday, 21 February 2008, 15:50 GMT
Northern Rock ends 125% mortgage
Northern Rock website
The 125% loan deal ends at 2000 GMT
The troubled Northern Rock bank is to stop offering its "Together" combined mortgage and loan deal.

The flagship offer from the bank will be closed from 2000 GMT.

The deal lets customers borrow up to 125% of the value of their homes and has been criticised for encouraging people to take on large debts.

Tens of thousands of Northern Rock customers may eventually be forced to remortgage at much higher interest rates when their current offers expire.

"Our present lending appetite has changed," said a bank spokesman.

"And demand for this product has now fallen to negligible levels, so we are withdrawing it," he added.

Higher repayments

The Northern Rock's half-year accounts, published last year, suggested that about 24% of its 800,000 mortgage holders had taken out a Together mortgage.

Some of those customers... are likely to have many doors shut in their faces by other lenders in the current economic climate

Typically lasting for two years, the popular deal allowed a home owner to have a 95% mortgage, with a further unsecured loan of up to 30% of the property's value, with that top slice capped at an extra 30,000.

The deal is currently priced at 8.29% for two years for the whole sum borrowed, but a year ago it was priced at just 6.49% and before that as low as 5.19%.

This means existing customers will eventually have to remortgage at the Northern Rock's standard variable rate, currently at 7.59%, producing a large payment shock for some, or move elsewhere.

But most other lenders offering similar mortgage deals withdrew them earlier this week.

"Some of those customers who don't fit standard lending criteria - the kind of borrower Northern Rock was happy to take on before the crisis began - are likely to have many doors shut in their faces by other lenders in the current economic climate," said the financial information website Moneynet.

It estimates that someone with an ordinary repayment mortgage worth 150,000 might see monthly repayments rise from 904 a month at 5.19% to 1,130 at a rate of 7.59%.


Because of its financial crisis, Northern Rock is about to be nationalised by the government.

This has prompted much speculation that the new chairman, Ron Sandler, will slim down the business by turning away new mortgage applications.

Evidence that this is happening already has come from mortgage brokers, who point out that the Northern Rock's current home loan deals now carry unattractively high interest rates compared with their rivals.

Following the most recent cut in interest rates by the Bank of England, the Northern Rock reduced its standard variable by just 0.1% to 7.59%, one of the highest around.

"It comes as no great shock to see Northern Rock not passing on the full cut," said Michelle Slade of the financial information service Moneyfacts.

"Since the 7 February Moneyfacts has seen Northern Rock reprice its whole mortgage range to an uncompetitive position compared with the rest of the market.

"This would appear to be an attempt to stave off taking on any new mortgage business," she added.

The Newcastle-based bank has also confirmed that it is now writing to all customers whose fixed-rate deals are about to expire, pointing out that they may well be able to get a better deal elsewhere.

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