Northern Rock says it kept churning out Together mortgages for five months after it was propped up by government money to maintain relationships with brokers.
In a report out from the National Audit Office entitled The Nationalisation of Northern Rock, it was exposed that the now infamous super-size mortgage product continued to be produced by the bank despite the state of its loan book.
Some £1.8bn in Together loans was written by the lender between September 2007 and February 2008.
Although £1bn of these mortgages was promised before September 2007, a further £800m was lent on mortgages up to 125% LTV.
Together loans made up 30% of Northern Rock’s mortgage book as of the end of last year, but accounted for 50% of its 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.”
The NAO report also reveals that prior to October 2007 the lender was offering applicants 5.9 x income. As part of the bank’s plan to get back on track income multiples were reduced to 4.9 x income.
David Hollingworth, mortgage specialist at London & Country, says: “Even at the time, 5 x and beyond was still pretty racy amounts – it would have been known Northern Rock was flexible in their income multiple and that would undoubtedly have been one of the reasons it got used.”
The storm over irresponsible lending gathered speed last week with Lord Turner, chairman of the Financial Services Authority considering further mortgage regulation and Gordon Pell, deputy chief executive of Royal Bank of Scotland, branding 100% mortgages as “immoral”.