The NAO report concedes that nationalising the troubled lender in February last year offered the best prospect of protecting taxpayers’ interests.
But it also highlights that Northern Rock continued to write loans at up to 125% LTV even after September 2007 when the bank had received taxpayer cash.
Between September 2007 at the time of the run on the bank and February 2008 when the lender was nationalised Northern Rock wrote over £1.8bn of Together loans, accounting for 30% of the bank’s total mortgage lending.
Around £1bn of the new Together mortgages written in this period had to be upheld by the lender as they had been promised to potential borrowers before trouble emerged in September 2007.
But this left a further £800m in 125% LTV mortgages which continued to be lent even though the scale of dodgy assets on Northern Rock’s loan book had been laid bare.
As at December 31 2008 Together Mortgages made up 50% of the bank’s overall arrears and 75% of repossessions.
Tim Burr, comptroller and auditor-general of the NAO, says: “Northern Rock continued to write these high risk products during the period it was receiving emergency support from the taxpayer, albeit at a reduced volume.
“The Treasury told us that mortgage transactions, although not necessarily Together mortgages in particular, were necessary to maintain the business, for example to maintain the company’s relationship with mortgage brokers while a longer-term solution was sought.”