An additional £14 billion in mortgage lending by nationalised Northern Rock has been announced in a new wave of government measures to tackle the economic crisis.
The lender will make an extra £5 billion in loans this year with a further £9 billion in 2010.
The move follows Chancellor Alistair Darling’s decision last month to reverse the rapid wind down of the bank’s loan book.
Ministers are increasingly anxious to see the flow of credit restored to home-buyers and businesses amid continuing reluctance by the banks to lend as they rebuild their balance sheets.
Northern Rock is well ahead of schedule on its repayment of money it has borrowed from the government, with £9 billion outstanding at the end of December compared with £27 billion a year earlier.
Today’s announcement is thought to be the first in a series relating to the embattled banking sector this week.
Asset protection scheme
Prime Minister Gordon Brown and Mr Darling returned last night from a summit of European leaders in Berlin to be briefed on talks that took place over the weekend between the Treasury and UK banks on the government’s asset-protection scheme.
The plan – expected to be finalised this week – will see the taxpayer underwrite the so-called ‘toxic assets’ held by banks, in an effort to get credit flowing again.
Ministers are also expected to move towards a policy of ‘quantitative easing’ – or printing money – providing tens of billions of pounds to buy bonds and gilts from banks.
Chancellor Alistair Darling said that Northern Rock would be able to give mortgages of up to 90%, but most would be lower, ‘at a sensible level’.
He added: ‘Northern Rock are not going to do 100% [mortgages]. They had their fingers very badly burned and, rather more importantly, a lot of their customers had their fingers very badly burned. They can go up to 90% but they will have to take that judgment on the individual circumstances.’
Mr Darling revealed that the new lending would be funded by slowing down repayments to the taxpayer of the remaining bail-out cash.
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© Press Association 2009
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