Northern Rock has announced that it will revive its mortgage lending with extra money from the taxpayer.

The decision comes as part of a wider government plan to boost lending across the banking industry, and goes back on the bank’s previous policy of winding down its loans.

The bank also announced that it would report a loss of £1.4 billion for 2008, and said that it would freeze the pay of senior staff at 2008 levels, and would not award them bonuses except for contractual entitlements. Frontline staff however, such as bank tellers, will receive bonuses worth up to 10% of their 2008 salary. Likewise, junior managers will receive a bonus for 2008, but this can be witheld until 2010 or denied them if performance criteria are not met.

In a reveral of its previous lending policy, the Newcastle-based bank is aiming to lend an extra £5 billion in new mortgages this year, and up to £9 billion from 2010. The Treasury will provide the bank with an extra £10 billion of taxpayers’ money to fund the project.

“This is good news for customers of Northern Rock and for consumers generally, who will benefit from an increase in mortgage availability,” said the bank.

“The new lending proposition means that the company’s existing mortgage customers will not be actively encouraged to leave when their mortgage deal matures and they will have more choice,” it added.

The new lending policy will also mean that existing customers will be able to benefit from offers previously available only to new customers.

Chancellor Alistair Darling has suggested that mortgages could be lent at up to 90% of the value of a property. Currently, potential homeowners are typically required to put down a 20% deposit. He said that he hoped to roll out the changes to Northern Rock’s lending policy across the board.

“[Northern Rock] repaid about £18bn of the loan the government made, and I said in January this year that because of the problems the mortgage market faced, instead of looking to wind down its business, it would be better for Northern Rock to maintain lending,” Mr Darling said.

With the average value of new mortgages currently at £112,000, an extra £5 billion lending is equivalent to roughly 44,600 averaged-sized home loans per year.

However, the change in policy does not mark an end to Northern Rock’s problems. The bank revealed that the number of its mortgage customers in arrears has risen sharply. Many of these customers signed up to the notorious 125% loans under its “Together” policy, and the bank expects to continue making significant losses this year.

This entry was posted on Wednesday, February 25th, 2009 at 12:32 pm and is filed under Banking, Housing Market, Loans, Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.