The UK government is seeking to convert the estimated GBP25 billion of loans into bonds which will be sold in the open market. In order to make these bonds attractive, the government will guarantee them.

It has now emerged that in addition to requiring a fee for the guarantee, which could be as much as GBP400 million, the UK government is insisting that the guarantee is limited to 3 years. This means that the bonds will only have a 3 year life, and at the end of that time they will need to be replaced by alternative funding.

In practice, Northern Rock will have to seriously downsize, if not decimate, its mortgage portfolio. It can only achieve this target by actively encouraging mortgage holders to migrate to other bank and building society lenders.

Due to the severity of this requirement by the government, one of the bidders, Olivant, has pulled out.

This leaves 2 proposals on the table for Northern Rock.

The offer from Sir Richard Branson, of the Virgin group, is considered to be the front runner. Virgin’s offer is complex and involves merging Northern Rock into Virgin Money.

Northern Rock currently has 420 million shares in issue. Existing shareholders will be asked to subscribe to a rights issue and purchase 6 new shares at 25 pence for each share they currently hold. This equates to GBP1.50 x GBP420 million which equals GBP630 million of new money.

Total shares held by existing shareholders will then be 420 million times 6, which equals 2,520 million, plus the original 420 million, which equals 2,940 million shares.

Virgin proposes that there will be 6,600 million shares. The current shareholders will hold 2,940 million while Virgin will hold 3,660 million. This means that the existing shareholders will see a dilution of their combined stake to 45%, while Virgin holds a majority 55%.

Virgin will purchase 2,600 milllion shares at GBP25 pence which equals GBP650 million. In addition, they will receive a further 1,000 million shares as Virgin Money will be merged with Northern Rock. This values Virgin Money at GBP250 million and most commentators consider this a highly inflated figure.

What this means is that Virgin is acquiring Northern Rock for a cash payment of GBP650 million. When one considers that Northern Rock has some GBP100 billion of assets, is one of the top 5 UK mortgage lenders with a market share of 20 percent, this seems a most attractive deal for Sir Richard Branson.

Many consider the Virgin bid to be favoured by the UK government. Indeed Sir Richard just happened to be with the Prime Minister as part of a UK trade delegation to China in January 2008, and he has a longstanding relationship with the Labour Party which was nurtured during the Blair years.

The Virgin group is a private entity and not listed on any stock market. As such its financial structure is opaque. Sir Richard is a persistent self publicist, and a shrewd and ruthless operator. He does have an informal, beach bum appearance. Unlike most beach bums from the Caribbean, Sir Richard owns his own private island of Necker. Concerns have also been expressed at his non UK status for tax purposes and the likelihood that very little tax will be returned to the exchequer if and when Virgin sell the revamped bank in several years time.

In fact Mr Vince Cable, a Liberal Democrat MP, has made reference to Branson’s past unlawful behaviour in that he allegedly evaded purchase tax in 1971 and agreed to pay penalties in order to avoid a criminal prosecution.

From the viewpoint of shareholders, the Virgin offer is unattractive. Many shareholders bought their shares 1 year ago when they were priced at GBP12. Due to the adverse publicity, the shares are currently just under GBP1.

Many shareholders are incensed that Branson will be purchasing shares at just 25 pence. Even in the current and extraordinary market conditions, the shares are quoted at around 4 times this figure. The Virgin proposal also expects shareholders to subscribe to a rights issue based on a purchase of a further 6 share at 25 pence for each existing share held. This would raise GBP630 million.

The new money provided by existing shareholders is only slightly less than the GBP650 million which will be injected by Virgin. However, Virgin acquires a 55% controlling stake in the company.

Although the UK government have provided major funds for Northern Rock, it should be remembered that from a legal standpoint, the company is owned by the shareholders, and not the government. The shareholders have already flexed their muscles at the Extraordinary General Meeting of 15 January 2008 at which a resolution was passed to limit the authority of the Directors to issue shares. Clearly, any rescue plan for Northern Rock would need the approval of existing shareholders. At present, there appears very little chance of the shareholders handing over the company to Sir Richard Branson.

The response to this exercise of shareholder power by the UK government is lamentable. They issue repeated threats to nationalise the bank if shareholders are uncooperative. These threats are empty gestures as the spectre of nationalisation haunts New Labour, and the record of public ownership in the UK is, as elsewhere, unimpressive. Talk of temporary nationalisation, as a way of cheating shareholders of their rights, demonstrates the cynical disregard of the government for UK company law. This is a measure which would certainly meet with a legal challenge from shareholders.

The alternative proposal is an internal rescue plan. Some GBP500 million of new funds would be raised from a rights issue. This is feasible as existing shareholders are far more likely to subscribe additional funds to this proposal which effectively safeguards their interests rather than give funds to a company which is being handed to Sir Richard Branson.

On 10 February 2008, several banks have offered to securities around one half of the loans provided by the government to Northern Rock. This means that the UK government would need to guarantee some GBP13 billion of bond issues as opposed to GBP25 billion. On balance, this move will weaken the Virgin bid.

Leslie Hardy is a noted writer on North Cyprus Property
and the UK Chairman of Wellington Estates Ltd. Read more on Northern Rock

Types of mortgage loans

There are several types of mortgage loans, each suitable for specific situations. The most common types are fixed rate, adjustable rate, and balloon loans.

Fixed rate mortgage loans

In a fixed rate loan, the interest rate stays the same throughout the term of the loan. Consequently, the monthly payment does not change, regardless of the prevailing market rates. This offers more stability for the mortgagor, but at the price of higher interest rates.

Fixed rate mortgage loans usually last 15 or more years. When the mortgagee grants a long term loan, they take on the risk of rising interest rates. This means that if the prime interest rate goes up, the lender, instead of the borrower, will pay the difference.

Adjustable rate mortgage loans

Adjustable rate loans start with a fixed rate for the first three to seven years, and then switch to an adjustable rate after the initial period. In this type of loan, the interest rate changes according to the market rates. This means the mortgagor assumes the risk throughout the loan. When the market rates go up, the buyer pays the higher interest rate. As a sort of incentive, the interest rate for the initial period is lower than that of the fixed rate loan.

Balloon mortgage loans

Also called a reset mortgage, a balloon mortgage loan starts with a very low fixed rate for seven to 10 years. After that, the buyer has to pay off the entire balance. Many people take out these mortgage loans and refinance their homes before it reaches the balloon phase. However, the risk in this scheme is that there is no way to predict the interest rates at the time of refinancing.

Refinancing mortgage loans

A common technique is to refinance a home while paying off a mortgage loan. This helps the owner find lower interest rates, reduce monthly payments, or avoid the risk of long term commitments. Refinancing can be done with most types of mortgage loans, depending on the mortgagors situation.

The simplest type involves switching between two adjustable rate mortgage loans. This is useful when the new loan has lower rates or shorter terms. It is also possible to switch between different types of mortgage loans, such as adjustable rate to fixed rate, or vice versa. The latter is usually done after the initial fixed rate period to maintain stability. Fixed to adjustable rates are ideal for people who do not plan to stay in the home for a long time, and thus may not find mortgage loans profitable.

Today with the state of the economy there are also loans called Short Refinance Loans. These help people where their equity in their home has fallen below their loan amount. For current information about this sort of loan do a standard search of Short Refinance Loan such as on Google.

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One essential point is to ensure that the rate of interest doesn’t alter during the life of the mortgage. Of course, many lenders seem to offer deals that are too good to be true. Loans arranged for a long-term fixed rate mortgage keep the same interest rate throughout the entire life of the loan agreement. If you are someone that wants a loan with a dependable fixed monthly mortgage payment with no hidden extra charges then this is the main benefit with this type of arrangement.

Many people decide to explore the possibility of a fixed rate mortgages when they first begin to look at homes for sale. A good aim is to pay of the mortgage as soon as you can without getting into fiscal trouble because of high monthly repayments.

It is useful to look at fixed rate mortgages over a longer period and not just 15 year fixed mortgage rate schemes. Although many people don’t really like the idea of having a mortgage as they draw close to the age of retirement so prefer to try to get one of the loans with a shorter 15 year fixed rate mortgage. It is often felt there is a lot of pressure to have the house payed off as soon as practicable.

Planning to have a family can be the clincher in many cases as relying on one income for a number of years can necessitate having the lowest possible mortgage repayments. Also, loans for a fifteen year fixed mortgage rate required a higher monthly payment. For many people this just isn’t feasible as they would just be in over their heads and in all likelihood be worrying about money every month.

Despite the trepidation of having a longer-term loan, the thirty years fixed mortgage rate can lower the monthly repayments considerably. Also, where possible, making a few additional lump sum instalments during the year will help to bring down the amount owed. By making just a few of these additional repayments each year it is possible that year’s could be subtracted from the mortgage term. This is well worth the effort in the long term but it does require some discipline.

Taking your current needs and fiscal abilities into account can be more serious than the desire for a shorter term 15 year fixed mortgage rate plan. Despite any worries that you may have things should turn out well in the end.

For More Information Visit Our Website good4mortgages.co.uk Or Our Blog good4mortgages.co.uk/blog

First of all, for your first home purchase, remember that if you buy this property you have to commit to this. If you think you will be relocated because of work, or other concerns, then maybe it is better if you do not buy a house yet. Nonetheless, there are people who would still consider buying despite the fact that they know they will not live on the house yet. They see this property as an investment that they can use when the right time comes, like when they have families already.

Next is reviewing your credit history. You are most likely going to avail of financial services from banks. Before loans are approved, credit analysts will review your financial standing and analyze your capability to pay your duties. If you do not have a good credit history, you might not be able to borrow money.

It is also wise to look at houses you can actually afford. Of course you have to consider the lot area, how many rooms there are as well as the number of bathrooms, the garage space, etc. In the end, you would have to think of how much can you really afford. If you have a big family, you can buy a big house but maybe you should consider settling in a location wherein real estate is not priced so high.

It is also important to consider the neighborhood and the schools nearby. As earlier said, your first home purchase is a big investment. You might want to check out the facilities near your house to assess the accessibility of food, education or whatever else you find important to you.

It could also be helpful if you sought professional assistance. There are many brokers or agents who would gladly help you look for a house. They can provide you with listings and even get you a good deal. These individuals would not charge you high because they would get commission from the seller.
When you have finally decided on which house you would buy, it is highly advisable that you research some more before actually bidding or writing an offer to the seller. Check out the recent sales of properties within the area you plan to purchase. You can access files with the help of your agent. Make an offer that is reasonable. Yes, you would want a really good deal but bidding very low would make the seller think that you are not serious in purchasing the property.

Lastly, you should hire a home inspector. Have him check the plumbing, the wiring and other details in your house. He can give you an idea what repairs should be made and how much it would cost you.

When you have gone through these things, you are more ready to make that first home purchase.

Corey Palmer is a home finance expert who educates people on the ins and outs of buying my first home.

Another type of mortgage that you may not be completely familiar with is reverse mortgages. These types of mortgages work much differently for the traditional type of mortgage that you likely took out to first purchase your home. This reverse type of mortgage is unique in that it is money you borrow on the equity of your home. In other words, if you own the majority of the value of your home, you may be eligible to take out a loan on that portion that you own. Of course, whatever portion of the value of your home that you still owe on your traditional mortgage would not qualify for this reverse type of mortgage.

If you are not completely familiar with reverse mortgages, you may be wondering if it is common for home owners to take out this type of mortgage on the value of their home. The answer is that it basically depends on the circumstances of the home owner. If you are considering taking out this type of loan, there are of course many things to take into consideration. You may first want to think about whether or not taking out a loan on the equity of your home is the best choice for your situation. This type of mortgage has worked out great for many home owners, but it really depends on your circumstances to determine if it will be right for you.

To decide if reverse mortgages are right for you, you might want to take into consideration how effective you were at repaying your traditional mortgages, or any other loan you may have taken out in the past. You may also want to consider how long ago you finished paying off your traditional mortgage and if you are ready to put yourself into debt once again. You might also want to think about what you want to borrow the money for in the first place and if you truly need to borrow the money.

One way people tend to get themselves deep into debt is when the borrow money without a purpose or true need. Reverse mortgages may very well be the best option for you if you approach the manner with responsibility and care. It can help to speak with reverse mortgage lenders before making your final decision just to be sure that you have all of your questions answered.

Reverse mortgage lenders can also help you determine how much you qualify to take out with this type of mortgage. Although there are many things to consider, do not let it overwhelm you. Just remember, this is similar to taking out any other type of loan. Once you have familiarized yourself with the process you will begin to feel much more comfortable with the process.

More information on reverse mortgages is just a click away.