SPECIAL FEATURE: Northern Rock: five years on
When word got out that Northern Rock had approached the Bank of England for an emergency loan to solve its liquidity problems, panic among the public set in.
Queues of nervous customers formed outside high street branches anxious to withdraw their savings fearing the bank would go bust with their money.
On the first day alone, banking sources reported customers took out £1bn of retail deposits.
Reliant on wholesale money markets to fund its mortgage business, Northern Rock were hit hard by the credit crunch in the United States caused by the securitisation of poorly underwritten sub-prime loans and falling house prices.
In an interview with the BBC at the time, the former head of the Financial Services Authority, Sir Howard Davies, said that mortgages were likely to become more difficult to obtain and costlier.
He said: “I would expect the net of all this to be a depressing effect on the housing market and for house prices at least to stabilise and probably to fall somewhat.”
Clearly no one could anticipate the chaos that was to follow.
Industry consultant Julian Wells avoided the initial flack.
“In September 2007 I was actually feeling incredibly relaxed about the state of the UK mortgage market,” he says. “That’s primarily because I was on a beach in the South Pacific island of Tonga and mostly consumed with things like scuba diving and swimming with whales.
“In August I’d just begun a six month career break to travel the world. I do recall getting some fairly fraught emails from my former colleagues in the specialist lending market who were talking about things like product withdrawls, market collapses, and the potetnial failure of the entire mortgage industry. I thought I must have falled asleep on my deckchair and had a nasty dream.”
Danny Lovey, retired independent mortgage intermediary, described how the crisis swiftly spread across the mortgage market.
He said: “It felt like the world was going to end and when Lehman Brothers went, we didn’t know who would be next.
“It was like dominoes, all the specialist lenders involved in sub-prime or self-cert stopped lending and that part of the market virtually disappeared.”
James Prosser, show director for the Mortgage Business Expo, was celebrating his birthday when the he heard news.
“I nearly spat my cornflakes out as I watched BBC Breakfast and saw the queues of people lining up outside Northern Rock,” he said. “I thought, what the hell was going on, what would this mean for me? What was going to happen?”
Doug Hall, deputy managing director of specialist mortgage desk, 3-mc, recalled the first lenders to fall.
“We were a first-charge mortgage packager at the time and Victoria Mortgages was the first to go from our panel, followed quickly by Rooftop and Mortgages Plc.”
But not all specialist lenders met their demise.
Hall added: “BM Solutions and GE Money were the main lenders to remain on our panel and supported the intermediary market throughout the downturn and continue to do so.”
Despite crippling conditions, savvy brokers and lenders have kept their heads above water by adapting and evolving to turn the rough hand they were dealt into an opportunity.
New lenders such as Precise Mortgages, Shawbrook Bank and Aldermore have come to market post crunch while regional lenders Kent Reliance and Saffron Building society have created their own niches.
Here, James Prosser, show director at Mortgage Business Expo, and John Wriglesworth of Wriglesworth PR both recall ther reactions to that torid day five years ago.
James Prosser, MBE Show Director: “September 14th will always be a memorable day for me. Not because of the run on Northern Rock but because it’s my Birthday – and what a present I got five years ago. At the time I was the commercial director at Incisive Media’s mortgage division which published Mortgage Solutions, then a weekly print magazine for mortgage brokers and IFAs.
“I remember the day vividly. I’d recently come back from paternity leave after the birth of my first child Alfie and was preparing for two weeks on the road with The Mortgage Event.
“I nearly spat my cornflakes out as I watched BBC Breakfast and saw the queues of people lining up outside Northern Rock.
“What the hell was going on? What would this mean for me? What was going to happen? I was in bits.
“Straight away I got on the phone to John Malone. John, how bad is it? I remember asking. This is really bad James, came the reply.
“My heart sank. I’d just had Alfie and was looking forward to a prosperous career.
“Incisive’s mortgage division crumbled quickly. It was clear there was no easy way out of this and like others in the industry we cut our cloth accordingly. I was made redundant in December 2008 and thought the world was going to end.
“However there’s always light at the end of the tunnel when you look for it. I decided that it could be an opportunity and trained as a broker with PTFS, quickly obtaining competent adviser status which allowed me to advise and sell life and protection products whilst studying for CeMAP.
“Fastforword to September 2010 and I was given the opportunity to reinvent Mortgage Business Expo and make MBE the success it is today.
“It’s been a long five years but the overriding message from it all is never give up”.
John Wriglesworth, managing director, Wriglesworth: “Five years ago, we tried to renegotiate the lease on our offices in the Strand as it was coming to an end.
“However, the landlord was having none of it as he needed the space and central London rents were rising at the speed of light. In these old premises we were a bit cosy to say the least, with thirty people cramming into around 2,000 square feet. There were daily employee complaints regarding “promiximity”, with several claiming that they needed at least one metre of space to call their own. I simply told them to ‘huddle up, cuddle up, and put up’.
“Therefore we had to find new premises. Unfortunately the beginning our search collided with the peak of the commercial property boom. While our old rental was £20 per square foot, the best that we could find was £35 per square foot – in Fetter Lane, a mere stone’s throw from Fleet Street.
“We also secured double the amount of space confident in the anticipation of economic growth. However, within a day of signing the new lease Northern Rock had its famous run and, unsurprisingly, previous optimism fell into a big black hole.
“Over the year following the Northern Rock collapse we lost over twenty clients, including Lehmans and other high-profile casualties.
“However, we recovered and survived by winning new clients from different areas such as human resources and legal.
“While these business wins compensated for our losses, our dream that we would have sixty people in the office within three years never came true.
“On the bright side, we managed to remain solvent, debt-free and profitable over the five years since the credit crunch.”