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Alistair Darling today defended his decision to allow Northern Rock to resume offering 90% mortgages, insisting the bank has learned from its mistakes.
Allowing Northern Rock to loan an extra £14bn over the next two years would help to kick-start the mortgage market, the chancellor insisted this morning.
He also confirmed that the bank, which was brought down by its reckless lending policy and reliance on wholesale credit, would be allowed to lend customers up to 90% of the value of their home. Most other lenders are unwilling to offer more than 75%.
"Northern Rock will not do 100% mortgages," Darling told the BBC Today Programme. "They had their fingers badly burned and more importantly so did many of their customers."
"They can go up to 90%, but will have to take that judgement based on individual circumstances."
The decision to use Northern Rock to revive the mortgage market is a significant U-turn. Darling explained that some of the £14bn will come from the taxpayer, with Northern Rock also being given more time to repay its existing loan from the government.
After it was nationalised, Northern Rock was instructed to run down its mortgage book quickly to raise funds to repay a loan which peaked at almost £30bn. It is now accepted, though, that this contributed to the collapse of mortgage lending in the UK.
Darling now hopes that Northern Rock can fill the gap and help more people buy a house.
But Liberal Democrat shadow chancellor Vince Cable warned that Northern Rock should not be "let off the leash" without clear guidelines.
"There has got to be a set of rules and principles for future mortgage lending, so we don't have the excesses of the past," said Cable.
"There are people out there who are prudent, who have got deposits, that can't currently get a mortgage, and they could manage it perfectly well," he added.
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