According to a report by the NAO into the nationalisation of the bank, in the lead up to public ownership, Northern Rock continued to write Together mortgages of up to 125 per cent of a property’s value between September 2007 and February 2008, while it was receiving emergency aid, prior to its nationalisation.
Over the period, the NAO says it wrote over £1.8bn of Together loans, around 30 per cent of total mortgage lending, compared with just under £5bn in the preceding eight months of 2007. The NAO admits around £1bn of these new mortgages reflected commitments made by the company to potential borrowers prior to September 2007.
It also says that the Government’s response to the crisis was “timely”: “Given the extent of the financial assistance provided from October 2007, the Treasury could have sought to introduce further conditions to limit the company’s activities, for example on the risk profile of lending undertaken,” says the report.
The report also found that the Treasury did not commission its own due diligence on the company’s operations, for example, on the quality of the loan book.
The NAO also revealed that the Treasury had been aware of potential shortcomings in potential dealings with a financial institution four years before Northern Rock fell. From 2004 the Tripartite Authorities had undertaken exercises to test their response to a range of scenarios and had identified the need for further work on how to deal with insolvent banks.
It also revealed that the Treasury did not challenge with sufficient rigour the company’s forecasts of future trading conditions, before approving its initial business plan under public ownership.