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Northern Rock makes life even harder for struggling borrowers
Tactics used by the 'aggressive and unsympathetic' bank can lead to people losing their homes needlessly, reports Jamie Elliott
Lender is taking up whole days at court with a 'charging order frenzy'. Photo: Edmond Terakopian/AFP/Getty images
Northern Rock is using aggressive debt recovery tactics which are putting at unnecessary risk the homes of people struggling to pay back loans, say debt advice experts. The bank is rushing to take court proceedings against defaulters and is unsympathetic when borrowers try to negotiate repayment deals to avoid their homes being repossessed.
The number of staff employed at Northern Rock to recover debt is set to almost double and the bank is taking up whole days in court to cope with the increased level of legal action. In Newcastle county court, at least a day a week is devoted to 30 or more Northern Rock charging order cases, as the bank seeks to convert risky unsecured loans into secured lending.
'Northern Rock has become harsher than the sub-prime lenders used to be,' says Chris Jary, director of Action for Debt, a debt advice service in Durham. 'Now, if you miss two mortgage repayments they take you straight to court. A couple of years ago they wouldn't have taken action for five or six months.'
Mark Norman, senior debt adviser with the Consumer Credit Counselling Service (CCCS), is especially worried about the growing tendency to place charging orders on the homes of borrowers who took out unsecured loans beyond their means. 'There's a charging order frenzy at the moment,' he says. 'And that's bad because once a charging order is in place, it's relatively easy for a lender to apply for an order for sale and for a borrower to then lose their home.'
The number of charging orders granted in England and Wales leapt from 9,207 in 2000 to 97,017 in 2007, according to Ministry of Justice figures.
Ann (not her real name), an administration officer from south Wales, had a charging order slapped on her home after she and her husband fell behind on a Northern Rock 'Together' mortgage. The 'Together' package let thousands of people take out 95 per cent mortgages plus unsecured borrowing of up to 30 per cent of their home's value to a maximum value of £30,000.
In 2002, the couple took out a 95 per cent mortgage with another lender to buy their £65,000 house. Just over a year later, Northern Rock lent them an extra £75,000 against their house - on top of their existing mortgage - plus another £18,000 in unsecured borrowing. The pair already owed £70,000 to credit card providers and other lenders. 'We thought the Northern Rock loans would sort our money problems out, but they didn't. Our income just covered the repayments, but there was nothing left for basic things like food and petrol,' says Ann.
Arrears soon built up and Ann got short shrift from Northern Rock. 'The bank refused to tell me how much of the single monthly payment was for the unsecured bit of the loan and how much for the mortgage,' she says. 'I needed to know this so CCCS could work out a debt repayment plan for us.'
Northern Rock released the information only after CCCS reminded it of its legal obligation to do so under the Consumer Credit Act. Then, earlier this year, Northern Rock threatened to continue charging interest on the £18,000 loan as a result of the charging order, unless she agreed to repay £200 a month - far more than she could afford.
'They had no right to charge interest because the law says interest automatically stops after a court judgment,' says Norman. 'Ann was trying really hard to hold on to her home, but Northern Rock wasn't interested in even trying to mediate. All we got was threats.'
Heating engineer David Turnbull from Durham found Northern Rock similarly unsympathetic when, after an acrimonious split with his girlfriend in January, the 25-year-old tried to transfer their joint mortgage into his name. With an income of £30,000-£35,000 a year, he was confident he could manage the repayments on the £88,000 mortgage.
'When I tried to talk to Northern Rock, they said they would not contact my girlfriend to ask if she would sign papers to transfer the mortgage, and when I asked them to switch the mortgage to interest-only, they refused to do that as well. When I took out the mortgage I thought I'd be able to go and talk to them if I got into difficulty. But you can't talk to them - they just don't want to know.'
He gave up trying to hang on to his home and has moved back in with his
parents. Northern Rock has written to tell him the house is to be repossessed.
Northern Rock would not say how many charging orders it makes. However, a spokesperson said: 'There has been no huge increase in volume. It is standard for charging orders to be heard in court. Possession, if taken, is a last resort and is linked to default on the mortgage. We continue to work with customers who are experiencing payment difficulties to try to resolve the situation in a mutually acceptable fashion. We do have a policy of rapid movement towards recovery where it is clear that it is not in the interests of either the customer or the company to forbear.'
Chris Tapp, director of money advice charity Credit Action, sees a mismatch between Northern Rock's approach and the government's position on mortgage lending: 'We have the government asking banks to be sympathetic to borrowers in difficulty, while on the other hand we have the bank over which government has the most influence not exhibiting this attitude. I would have hoped that a bank so close to government would be an exemplar of good practice.'
Liberal Democrat deputy leader Vince Cable wants stronger regulation of all lenders. 'Northern Rock and some other lenders are being tough and ruthless with borrowers and I know of cases where families are sleeping in their cars as a result,' he says. 'But this points to the need for a legally binding code of conduct during the repossession process.'
Caught in the equity trap
In some cases, Northern Rock has held off converting unsecured debt into secured debt because bankruptcy proceedings by other debtors will allow the bank to claim its money back more quickly. Action for Debt's Chris Jary has seen a number of bankruptcy cases where the Rock's decision not to convert the unsecured portion of a 'Together' loan into a secured loan has led to people losing their homes.
Graham, who is going bankrupt due to debts other than his home loans, has a Together loan on his £120,000 house comprising £95,000 of secured borrowing and £25,000 of unsecured borrowing. He needs Northern Rock to secure the £25,000 against his property if he is to avoid losing it in the bankruptcy.
'When you are made bankrupt, your house is sold only if it has equity in it,' explains Jary. 'If Northern Rock agreed to secure the unsecured portion of Graham's Together loan against the house, Graham could keep it, because there would be no equity in it. In addition, Northern Rock would stand a good chance of getting all their money back when the property was eventually sold.'
But in Graham's case, and others like it, according to Jary, Northern Rock is refusing to help and going ahead with repossession proceedings. 'In the long run Northern Rock, and the taxpayer, end up getting less money back this way because much of the equity in the property is eaten up by bankruptcy costs and agents' fees,' he says.
· Citizens Advice: adviceguide.org.uk. Consumer Credit Counselling Service: 0800 138 1111; cccs.co.uk. Bankruptcy Advisory Service: 01423 799141; bankruptcyadvisoryservice.co.uk
Tactics used by the 'aggressive and unsympathetic' bank can lead to people losing their homes needlessly, reports Jamie Elliott
- Jamie Elliott
- The Observer,
- Sunday July 13 2008
- Article history
Lender is taking up whole days at court with a 'charging order frenzy'. Photo: Edmond Terakopian/AFP/Getty imagesNorthern Rock is using aggressive debt recovery tactics which are putting at unnecessary risk the homes of people struggling to pay back loans, say debt advice experts. The bank is rushing to take court proceedings against defaulters and is unsympathetic when borrowers try to negotiate repayment deals to avoid their homes being repossessed.
The number of staff employed at Northern Rock to recover debt is set to almost double and the bank is taking up whole days in court to cope with the increased level of legal action. In Newcastle county court, at least a day a week is devoted to 30 or more Northern Rock charging order cases, as the bank seeks to convert risky unsecured loans into secured lending.
'Northern Rock has become harsher than the sub-prime lenders used to be,' says Chris Jary, director of Action for Debt, a debt advice service in Durham. 'Now, if you miss two mortgage repayments they take you straight to court. A couple of years ago they wouldn't have taken action for five or six months.'
Mark Norman, senior debt adviser with the Consumer Credit Counselling Service (CCCS), is especially worried about the growing tendency to place charging orders on the homes of borrowers who took out unsecured loans beyond their means. 'There's a charging order frenzy at the moment,' he says. 'And that's bad because once a charging order is in place, it's relatively easy for a lender to apply for an order for sale and for a borrower to then lose their home.'
The number of charging orders granted in England and Wales leapt from 9,207 in 2000 to 97,017 in 2007, according to Ministry of Justice figures.
Ann (not her real name), an administration officer from south Wales, had a charging order slapped on her home after she and her husband fell behind on a Northern Rock 'Together' mortgage. The 'Together' package let thousands of people take out 95 per cent mortgages plus unsecured borrowing of up to 30 per cent of their home's value to a maximum value of £30,000.
In 2002, the couple took out a 95 per cent mortgage with another lender to buy their £65,000 house. Just over a year later, Northern Rock lent them an extra £75,000 against their house - on top of their existing mortgage - plus another £18,000 in unsecured borrowing. The pair already owed £70,000 to credit card providers and other lenders. 'We thought the Northern Rock loans would sort our money problems out, but they didn't. Our income just covered the repayments, but there was nothing left for basic things like food and petrol,' says Ann.
Arrears soon built up and Ann got short shrift from Northern Rock. 'The bank refused to tell me how much of the single monthly payment was for the unsecured bit of the loan and how much for the mortgage,' she says. 'I needed to know this so CCCS could work out a debt repayment plan for us.'
Northern Rock released the information only after CCCS reminded it of its legal obligation to do so under the Consumer Credit Act. Then, earlier this year, Northern Rock threatened to continue charging interest on the £18,000 loan as a result of the charging order, unless she agreed to repay £200 a month - far more than she could afford.
'They had no right to charge interest because the law says interest automatically stops after a court judgment,' says Norman. 'Ann was trying really hard to hold on to her home, but Northern Rock wasn't interested in even trying to mediate. All we got was threats.'
Heating engineer David Turnbull from Durham found Northern Rock similarly unsympathetic when, after an acrimonious split with his girlfriend in January, the 25-year-old tried to transfer their joint mortgage into his name. With an income of £30,000-£35,000 a year, he was confident he could manage the repayments on the £88,000 mortgage.
'When I tried to talk to Northern Rock, they said they would not contact my girlfriend to ask if she would sign papers to transfer the mortgage, and when I asked them to switch the mortgage to interest-only, they refused to do that as well. When I took out the mortgage I thought I'd be able to go and talk to them if I got into difficulty. But you can't talk to them - they just don't want to know.'
He gave up trying to hang on to his home and has moved back in with his
parents. Northern Rock has written to tell him the house is to be repossessed.
Northern Rock would not say how many charging orders it makes. However, a spokesperson said: 'There has been no huge increase in volume. It is standard for charging orders to be heard in court. Possession, if taken, is a last resort and is linked to default on the mortgage. We continue to work with customers who are experiencing payment difficulties to try to resolve the situation in a mutually acceptable fashion. We do have a policy of rapid movement towards recovery where it is clear that it is not in the interests of either the customer or the company to forbear.'
Chris Tapp, director of money advice charity Credit Action, sees a mismatch between Northern Rock's approach and the government's position on mortgage lending: 'We have the government asking banks to be sympathetic to borrowers in difficulty, while on the other hand we have the bank over which government has the most influence not exhibiting this attitude. I would have hoped that a bank so close to government would be an exemplar of good practice.'
Liberal Democrat deputy leader Vince Cable wants stronger regulation of all lenders. 'Northern Rock and some other lenders are being tough and ruthless with borrowers and I know of cases where families are sleeping in their cars as a result,' he says. 'But this points to the need for a legally binding code of conduct during the repossession process.'
Caught in the equity trap
In some cases, Northern Rock has held off converting unsecured debt into secured debt because bankruptcy proceedings by other debtors will allow the bank to claim its money back more quickly. Action for Debt's Chris Jary has seen a number of bankruptcy cases where the Rock's decision not to convert the unsecured portion of a 'Together' loan into a secured loan has led to people losing their homes.
Graham, who is going bankrupt due to debts other than his home loans, has a Together loan on his £120,000 house comprising £95,000 of secured borrowing and £25,000 of unsecured borrowing. He needs Northern Rock to secure the £25,000 against his property if he is to avoid losing it in the bankruptcy.
'When you are made bankrupt, your house is sold only if it has equity in it,' explains Jary. 'If Northern Rock agreed to secure the unsecured portion of Graham's Together loan against the house, Graham could keep it, because there would be no equity in it. In addition, Northern Rock would stand a good chance of getting all their money back when the property was eventually sold.'
But in Graham's case, and others like it, according to Jary, Northern Rock is refusing to help and going ahead with repossession proceedings. 'In the long run Northern Rock, and the taxpayer, end up getting less money back this way because much of the equity in the property is eaten up by bankruptcy costs and agents' fees,' he says.
· Citizens Advice: adviceguide.org.uk. Consumer Credit Counselling Service: 0800 138 1111; cccs.co.uk. Bankruptcy Advisory Service: 01423 799141; bankruptcyadvisoryservice.co.uk
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