Northern Rock's own staff are too big a lending risk to be offered a mortgage

Northern Rock staff who are facing redundancy are being turned down for mortgages as they come to the end of cheap deals because lenders consider them to be too high a risk.

The Newcastle-based bank - which is giving former chief Adam Applegarth a £760,000 payoff - began a consultation with staff last week that is expected to result in 2,000 job losses. But the risk of redundancy means that some staff nearing the end of cheap deals are being rejected by lenders and face either payment hikes or the loss of their homes.

'The staff, like Northern Rock's other customers, are being encouraged to go elsewhere for their mortgages,' said Russell Greig, a Northern Rock employee and senior representative of Unite, the financial services union. 'But many have been rejected by lenders on the grounds that they work for Northern Rock and are seen as high risk in relation to potential redundancy.'

Northern Rock employees have been able to have mortgages on the same lenient terms the bank applied to many customers, which means that some have loans of up to 125 per cent of the value of their property. Others who have been with the bank since before 1993 have cut-price staff mortgage rates as low as 3.65 per cent on the first £30,000 of their loan, although those who have joined the bank more recently received a concessionary rate of 5 per cent.

'Northern Rock was always seen as a long-term employer, so there are quite a lot of employees who have.....continued below

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those staff mortgages,' says Greig.

Staff who are rejected by other lenders could be forced on to Northern Rock's standard rate which, at 7.59 per cent, is the highest of any of Britain's major lenders. This would add £230 a month to the repayments of someone currently paying 5 per cent interest on a £150,000 loan. 'Some of our members are having to consider selling their homes and renting or downsizing in order to reduce their loans,' says Greig. Many could struggle, however, to sell in a stagnant property market. According to the Land Registry, the price of the average semi-detached in Newcastle has fallen by £600 since the beginning of the year.

The number of Northern Rock borrowers losing their homes after falling behind with their mortgages has soared from 662 in 2006 to 2,215 last year. That figure is expected to grow as its borrowers struggle with soaring mortgage costs.

To compound the situation, Northern Rock staff are unlikely to be able to get mortgage payment protection insurance. 'If such insurance is granted at all, it will contain an exclusion to stop people claiming within the first three months,' says David Hollingworth of mortgage brokers London and Country.

Mortgage brokers say there is mounting evidence of lenders asking increasingly detailed questions about borrowers' employment prospects. 'In this market the threat of redundancy is bound to affect lending decisions, but there is a moral question around Northern Rock employees,' said Andrew Montlake of mortgage brokers Cobalt Capital. 'Are lenders doing the right thing by not lending to someone they know could lose their job or is it unfair discrimination when these people haven't been given a notice of redundancy?'

HSBC, which is offering some of the lowest mortgage rates on the market, said it was not aware of any Northern Rock employees being refused loans. 'We will ask who someone works for, but if they can show us six months' pay slips I don't think we would ask about future job security,' says a spokesman.

However, the Council of Mortgage Lenders, which represents Britain's banks and building societies, says any lending decision by its members could include an assessment of future employment. 'If someone is in circumstances where there is significant doubt about their future earning potential, it could be unreasonable to offer them a long-term debt,' says a spokesman.

In some cases, Northern Rock employees also face losses of up to £100,000 from the company's share-based savings schemes. 'These share schemes formed part of the company remuneration package and their value has been wiped out,' says Greig. 'Many staff were relying on these to supplement their pension. They need to be compensated for these losses.' Staff mortgages and other employee benefits are expected to be discussed at the consultation.

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