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Will Northern Rock’s management team face the docks?

The turmoil in the money markets is still the key issue on everyone’s minds in the mortgage world this week.

Beleaguered Northern Rock has reportedly now borrowed a staggering £7.75bn from the Bank of England, whilst lenders such as Mortgages Plc and DB Mortgages continue to price themselves as far out of the market as they possibly can.

Analysis of the Bank of England’s latest balance sheet by New Star economist Simon Ward shows the bank expanded its assets by a further 3 per cent in the week to September 26, following a 13 per cent increase the previous week.

According to Ward, an additional £7.75bn is classified under “other assets”, a category which many believe is likely to include the bank’s “lender of last resort” support to Northern Rock.

Reports suggest the Newcastle-based lender will fail to find a buyer, with one analyst warning Northern Rock is more likely to have to close down to new business and run off its loan book than succumb to a takeover.

If that was not bad enough for Northern Rock’s management team, reports are circulating that chief executive Adam Applegarth and chairman Matt Ridley are to be dragged in front of the Treasury select committee very soon.

With a brutal grilling expected to take place, will Applegarth be able to survive? With no-one in the Northern Rock crisis having yet lost their jobs, could this be the event that forces him to resign?

Meanwhile, other UK non-conforming lenders are continuing to tighten their criteria to a huge extent. DB Mortgages announced this week that following new criteria changes it will not honour previously accepted DIPs.

A spokeswoman for Deutsche Bank says that it made this decision as it wants to make sure its products are affordable and transparent for borrowers in these current market conditions.

She says the lender is not trying to reduce business but admits many packagers will decide to place business with other lenders.

DB Mortgages also announced it will be capping maximum sub-prime loan to values at 75 per cent, a move which several lenders in the market have taken over the last month.

Amidst all the sub-prime product changes over the last two months, packagers now appear resigned to the fact they will have lenders announcing they will not honour previously accepted DIPs, as DB Mortgages did this week. The outrage seems to have disappeared.

Packager Em Financial managing director Roger Morris told Money Marketing he was unsurprised by DB Mortgages’ move.

He says: “It is no surprise to us as that is clearly what it has to do to stay in the marketplace. I think its brand identity means a lot to them so it doesn’t want to risk having to pull completely out of the market. I think DB Mortgages has been told to keep criteria sensible and play it safe for the next six months.”

This week has also seen SPML, Preferred, Mortgages Plc and Amber Homeloans make a number of changes to their criteria, with the first two also hiking rates a further 0.75 per cent.

So, with so many lenders capping their maximum LTVs in sub-prime business at 75 per cent it would be interesting to see who actually is still doing sub-prime business these days and exactly how many applications lenders are receiving on a daily basis.

On a positive note, Infinity Mortgages has heralded its return to the lending market. Who is its backer? Investec. Yes that’s right, its former backer who was previously behind the reason for it having to pull its products in the first place.

When asked by Money Marketing how much funding Investec has provided, head of marketing Simon Biddle did not want to answer. But considering Investec-owned Kensington has decided to re-focus on the prime market and leave the sub-prime market well alone, my guess is Infinity’s funding won’t be very large at all.

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