Peter Lilley, MP for Hitchin and Harpenden, has challenged the government’s assessment of the value of Northern Rock. Speaking in the House of Commons, he suggested to the Chancellor, Alistair Darling, that the taxpayer was being asked to accept the risk of an unknown number of bad mortgages on the company’s books.
Mr Lilley, a former Treasury minister, questioned the government’s assurance that Northern Rock had a good quality loan book.
“Is it entirely credible that a company that increased its loan book by 50 per cent at the top of the market in the year before banks stopped lending to it, did so without hoovering up some sub-prime mortgages as well as prime mortgages?
Mr Lilley pointed out that bad mortgages could not be secured against good mortgages.
The Chancellor responded by saying he accepted the assessment of the Financial Services Authority about the quality of Northern Rock’s mortgage book.
Extract from Hansard of 21st January attached:
Mr. Peter Lilley (Hitchin and Harpenden) (Con): The Chancellor repeatedly reassured the House that Northern Rock has a good quality loan book. I have no doubt that most of its old loans are well secured, but is it entirely credible that a company that increased its loan book by 50 per cent. at the top of the market in the year before banks stopped lending to it, did so without hoovering up some sub-prime mortgages as well as prime mortgages? Given that bad mortgages cannot be secured against good mortgages, will the Chancellor accept that he is accepting, on behalf of the taxpayer, the risk of all the bad mortgages in that loan book?
Mr. Darling: I was reporting what the FSA said in relation to the Northern Rock mortgage book. It has said it on a number of occasions, and I believe it to be an accurate representation of the position.