Northern Rock recently announced a £585m loss in the first half of 2008. Much of the loss was attributed to the banks’ high loan-to-value (LTV) lending. Darren Cook of Moneyfacts.co.uk also warned that other lenders could find themselves in a similar position.

Northern Rock became synonymous with lending up to 125% of the value of a property as the country enjoyed the property boom of the late 90s, and so the bank has found itself with a mortgage book full of high risk borrowers who are unable to remortgage elsewhere.

Since the start of the credit crunch lenders have been tightening their mortgage criteria with very few loans available for those with a LTV of +90%. Many high LTV borrowers who are coming to the end of their fixed-rate period are now faced with much higher standard variable rates and, as house prices continue to fall, the risk of negative equity.

Darren Cook, an analyst at Moneyfacts.co.uk, told PIN: “Northern Rock was one of ten lenders offering mortgages above 100% LTV. Although Northern Rock has the highest percentage of these loans on its books, the others may also suffer some fallout. With borrowers moving onto standard variable rates it is inevitable that some will struggle to make their repayments. It is in the lenders’ best interests to assess those who are unable to make payments on a case-by-case basis and wherever possible to ensure that debts do not go to foreclosure.”