Northern Rock plc was nationalized by the UK government and the shares suspended on 18 February 2008. There are several groups of interested parties in Northern Rock. They are the shareholders, depositors and mortgage holders.
Shareholders
Nationalisation is devastating news for shareholders. There were several options for a rescue plan, and the City considered the Virgin bid, by Sir Richard Branson, to be the front runner. Sir Richard unashamedly lobbied Gordon Brown during the visit to China in January, and many financial reporters thought a deal was in the bag. When shares were suspended, they were trading at 90 pence. Around 420 million shares are in issue, so this values the company at GBP 378 million. The price of 90 pence is a dramatic reduction from the price in January 2007, which was GBP 12. At that time the company was valued at GBP 5 billion.
Due to the way that the Government intends to work out the compensation for shareholders, it is quite possible that they will receive very little indeed for their shares. This is because the government has directed that the valuation takes account of the fact that the company is unable to continue as a going concern, and is in administration, that is, effectively bankrupt. These terms of reference dictate that any valuation will determine that the shares are worthless. However, on the contrary, it is clear that the company remains a going concern as it continues to accept deposits and is offering mortgages to borrowers.
Shareholders are very likely to mount a legal challenge, although they will need to await the official valuation before commencing legal action.
Depositors
Savers with Northern Rock enjoy the best security of any UK Bank or Building Society. Savers with other institutions are only given a guarantee for the first GBP 35,000 of any holding, yet Northern Rock savers can invest unlimited funds and have the assurance of UK government support.
At the same time, the rates of interest enjoyed by depositors are among the highest available. There is a Tracker Online account which pays 6.49% plus a 1.24% bonus. This is just one of the attractive products being offered by Northern Rock. The problem is that other financial institutions in the UK have already started complaining to the government about unfair competition. The combination of high interest rates for savers, backed by a government guarantee, is an unbeatable package which no other bank or building society can match.
The Governor of the Bank of England has met with senior bankers on several occasions in order to assuage fears and complaints about unfair competition.
Mortgage Holders
As with savers, it is business as usual. However, in order to reduce taxpayers’ funding of Northern Rock, the book value of mortgages will have to shrink dramatically. It is estimated that the UK government have advanced some GBP 35 billion to Northern Rock since it encountered funding difficulties. The total value of mortgages outstanding is some GBP 115 billion. This means that the mortgage book needs to be reduced by around 30%.
The clear implication is that existing borrowers will face sharp increases in the costs of borrowing. These increased costs will take effect as soon as possible, and there will be no extension on ’sweetners’ enjoyed by new mortgage customers. Mortgage holders will be charged interest rates of up to 7.9% in the near future.
Northern Rock have already suggested that mortgage holders seek alternative mortgage products and have indicated that independent financial advice may be appropriate. This policy is bound to cause distress to mortgage holders. Northern Rock had a scheme whereby some 125% of the value of a property could be used for the purpose of a mortgage advance. In other words, the value of the mortgage greatly exceeded that of the property. New mortgage holders would be in a negative equity situation.
Many Northern Rock mortgage holders will have great difficulty finding alternative lenders. This is due to the current market conditions in which lenders are reigning in on attractive mortgage offers, and are expecting customers to increase their own level of deposit. Some customers who currently enjoy 125% mortgages from Northern Rock may be horrified to learn that other mortgage lenders may only offer around 90% of a property valuation.
In addition, property valuations are moving downwards in line with the depressed state of the UK housing market. This means that many Northern Rock customers will be penalised by increased lending costs from the company and will also be unable to find an alternative mortgage lender.
We will soon face the prospect of Northern Rock mortgage holders defaulting on their repayments and risking re-possession. What will make this different from foreclosures in the US subprime mortgage market is that the mortgage lender is the UK government, and moreover, a Labour government committed to helping families on low incomes and those experiencing financial hardship. The prospect of repossessions must be a nightmare for the Labour government. Not only would it antagonise traditional Labour Party supporters, but it would remove any vestige of economic competence from Gordon Brown.
Mr Brown has consistently sought to take credit for the economic prosperity enjoyed by the UK during the Blair years. He has been put to the test by Northern Rock. By any yardstick, he has failed. Government incompetence has also damaged the international reputation of the City of London.
Further bad news is expected.
Archive for March, 2007
Northern Rock Is Nationalised – What Does This Mean?
Sunday, March 25th, 2007Dealing With UK Water Rates Debts: What You Need To Know
Sunday, March 18th, 2007
UK Water Rates
YOU CANNOT BE DISCONNECTED FOR WATER RATES DEBTS
Water companies can no longer disconnect your water supply if you are in arrears. The rules changed on 30th
June 1999. They also cannot install anything in your home that restricts the flow of water from the taps. If the water company threatens to disconnect you for being in arrears, complain to OFWAT, the body that regulates the water companies.
You can complain to OFWAT through your regional Watervoice customer service committee. See complaints section.
Warning: Some water companies are threatening to disconnect a property on the basis that “they think the property is empty”.
Make sure you keep in touch with the company as they may attempt to do this if no one has responded to their letters for some time. If you have a threat of disconnection to your supply, ring the water company and make sure they understand that you are still in the property and they cannot disconnect the supply.
HOW DO I DEAL WITH WATER RATES ARREARS?
You should carry on including your current water rates in the STEP 2 OUTGOINGS section of your personal budget. This is because water is an ongoing bill. If you have water rates arrears then they no longer need to be treated as a priority debt. You can make an offer of repayment that you can afford using your budget sheet along with your other credit debts in STEP 6. If you are on Income Support/Pension Credit/Job Seeker’s Allowance you can ask the Department of Work & Pensions (DWP) to deduct a sum to cover current water rates and a standard amount towards the arrears from your benefit each week.
If you do not agree a repayment arrangement then the water company can issue a County Court Claim against you to ask you to repay the money you owe. You can make an offer of payment by filling in the Reply Form to the Claim (N9a) and sending this back to your water company within the time limit. If the court agrees with your offer then you will be told to pay the debt off in instalments.
RIGHTS TO WATER METERS
From April 2000 you have the right to have a water meter put in so that you are charged on the basis of the water you actually use. You can swap back to the usual non-metered system within 12 months if you don’t like the water meter; e.g. your bills are higher than before. It may be cheaper to have a water meter put in if you don’t use much water e.g. you are single or out all day. Contact your water company, as some suppliers will advise you if your bills are likely to be cheaper if you move to a water meter.
HELP WITH HIGH BILLS
There are new rights to get some help with water bills if you are on a low income and on a water meter. You will only pay the average bill that the water company charges overall so if you use a lot of water then your bill will go down.
To qualify for help you must be on a water meter, and someone in the household must be on one of these benefits:
Income Support
Income Based Job Seeker’s Allowance
Pension Credit (from October 2003)
Working Tax Credit
Child Tax Credit (except families who receive the family element of Child Tax Credit only)
Housing Benefit
Council Tax Benefit
and
there are three or more children under 16 in the household,
or
someone in the household has a medical condition that means extra water use such as:
Flaky skin disease
Weeping skin disease, i.e. eczema, psoriasis, varicose ulcers
Incontinence
Abdominal stomas
Renal failure.
You can get an application form from your water company. You need to give proof of the benefit you are receiving and you will need to explain your medical condition in detail. You can stay on the scheme for a year and then have to re-apply.
COMPLAINTS
If you have a complaint about your water company you should speak or write to your water company first. Each water company should have a complaints procedure they can send you. Your water company should reply to your complaint within 10 working days.
If you are not happy with the outcome you can complain to OFWAT. Your regional customer service committee known as “Watervoice” will deal with your complaint. To find out which Watervoice Regional Office to complain to, contact:
OFWAT
Centre City Tower
7 Hill Street Birmingham B5 4UA
Tel: 0121 625 1300
[http://www.ofwat.gov.uk]
Watervoice
[http://www.watervoice.org.uk]
WATER TRUST FUNDS
A number of water companies operate charitable trust funds. Some offer help only with water and sewerage debt; others are prepared to help with other priority debts and even bankruptcy fees in certain situations. Others offer ‘restart schemes’. These operate on the basis of you entering into a regular payment scheme, and payments made are then matched by the trust fund. If you maintain the arrangement, the remaining debt may be written off. You will need to contact the trust fund to find out how to apply. You will usually have to fill in a form. You may need an advice agency to help you.
CHARITABLE TRUST FUNDS
South Staffordshire Water Trust Fund
http://www.south-staffs-water.co.uk (water company website only) Telephone: 01922 63 82 82
Only pay for water debts. You must show some commitment to pay ?1.00 or more a week for 2 months. To apply you need a personal budget sheet completed by an adviser and a covering letter.
Anglian Water Trust Fund http://www.awtf.org.uk
PO Box 42, Peterborough, PE3 8XH. Email: admin@awtf.org.uk
As well as water and sewerage debts they may also pay bankruptcy fees and any other bills you are having difficulty paying.
Hartlepool Water, Tendring Hundred Water, Cambridge Water, Three Valleys Water, Essex & Suffolk Water are either owned by Anglian Water or contribute towards its trust fund and you can also apply to the Anglian fund if you are a customer of one of these companies.
EOS Foundation http://www.eosfoundation.org.uk
PO Box 42, Peterborough PE3 6XH
Telephone: 01733 330 732
eos@charisgrants.com
Will help with water debts and other essential bills. You will need to fill in an application form with proof of income. You must be a customer of Portsmouth Water, Tendering Hundred Water, Folkestone & Dover Water, Mid Kent Water, Bournemouth & West Hampshire Water, South East Water.
Severn Trent Water Trust Fund http://www.sttf.org.uk
Telephone: 0121 355 77 66
Email: office@sttf.org.uk
As well as water and sewerage debts they may also pay bankruptcy fees and any other bills you are having difficulty paying.
WATER COMPANIES OPERATING RESTART SCHEMES
(Trust fund matches your payments on your arrears) Yorkshire Water
Community Trust http://www.ywct.org.uk
Telephone: 0845 1 24 24 26
info@ywct.org.uk
Only assist with water or sewerage arrears that are no more than two years old and less than ?1000. You must be in a multiple debt situation.
United Utilities http://www.unitedutilities.com
Telephone: 0845 746 11 00
“Arrears Allowance Scheme” only assists with water or sewerage charges and application forms have to be completed by local CAB on your behalf. A customer counsellor may also offer a home visit.
Thames Water [http://www.thames-water.com] (water company website only)
“Customer Assistance Scheme” only assists with water or sewerage charges and they prefer that you are referred by a local advice centre/NDL/CAB/Social Services/Age Concern
You may be visited in your home.
Welsh Water/Dwr Cymru
Telephone: 0800 052 0145
“Customer Assistance Fund” You must be referred by a money adviser and complete an application form. After you have made payments for 6 months, the fund pays half your water arrears. After another 6 months payments the rest of the arrears will be paid.
Bristol Water http://www.bristolwater.co.uk (water company website only) Apply in writing to:
BWBSL, 1 Clevedon Walk,, Nailsea, Bristol BS48 1WW.
You have to write to them to request to be considered for the restart scheme. You may then be visited in your home.
South West Water http://www.southwestwater.co.uk
Telephone: 0800 169 1133 (customer services)
“Special Assistance Scheme” helps with water charges only. Application forms from CAB’s and Age Concern. You have to provide evidence that you are trying to pay or stick to a repayment programme.
The UK Loans Market Gets Competitive
Thursday, March 8th, 2007
As if the UK debt market isn’t at busting point already, there are several Loan companies vying for new customers and the year has just begun. January is the busiest month of the year for loan applications so it is basically a feeding frenzy for the loan companies. What is the UK debt situation going to look like at the end of the year?
Personal loan rates are dropping all the time and at the time of this article being written one of the more competitive rates being promoted in the market is 5.5%. This applies to loans from as little as ?1,000 to a max of ?25,000. On the face of it that looks like a good deal but always remember that most lenders will reserve their best rates for those that are borrowing over ?7,000.
There is a base rate drop on the cards this year and all the loan companies are factoring this into their rates on offer. The rates may seem attractive but if the interest rates drop then you may be a % point worse off if you have locked yourself into one of these low rate loans now.
There are a lot of people that are still paying off their debt from last years Christmas season. The attractive rates on offer at the moment are just going to perpetuate the borrowing cycle. Is this not what the banks want? If you take out a loan you are going to get the hard sell in order to take out payment protection. This is entirely up to the borrower but in many cases it has been shown that the cost of the protection is extremely expensive and should you need to be covered you will find that there are several conditions that apply so beware. Banks make an absolute fortune from this as only a small % of people actually end up having to claim.
Think of it this way: You get a loan for 5.5%, you take out payment protection and that extra charge on your card every month in real terms actually pushes your interest rate up by about 0.5%. This means you are actually paying 6%. There has been a lot of press lately about the mis selling of PPC so again be cautious.
I won’t mention all the companies that are fighting for your business but you can be certain that when you open that magazine you have just bought about 2 lbs in weight of loan brochures will fall from the covers.
The general rule of thumb in the industry is that two thirds of all applicants should qualify for the APR advertised but unfortunately only those with excellent credit ratings will get this rate. Others will be hooked into slightly higher rates so what you see advertised is not necessarily what you get.
