Why is Northern Rock facing problems?

Northern Rock is one of the UK's leading 6 mortgage lenders. Previously it has experienced rapid growth and sometimes looked upon as offering a remarkable model for growth.

The weakness of the Northern Rock business model is that its mortgage lending has not been financed by savers but by borrowing through the financial markets.

This means that the Northern Rock was hit when financial institutions became less willing to buy risky mortgage debt. This follows on from the weakness in the US sub prime mortgage sector.

Other banks are less at risk. This is because they have secured their mortgage lending against domestic savings in their current accounts.

The Northern Rock has also specialised in risky mortgage lending such as high income multiples and interest only mortgages

Shares in Northern Rock have fallen 32% since the announcement last week they needed to make an emergency borrowing from the Bank of England

Related:

Sub Prime Mortgage Carnival

- Features one of my blog entry's about. What can we learn from the US sub Prime mortgage Crisis

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