MAIL ON SUNDAY COMMENT: The Rock is still running rings around Brown

By Mail on Sunday Comment for the Daily Mail
Updated: 18:55 EST, 6 December 2008

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Northern Rock was the most enthusiastic backer of the buy-to-let entrepreneurs

As the recession tightens its grip, the greed and misjudgment that brought us here becomes ever clearer.

When the cracks in the economy first appeared last summer, Northern Rock was the first to fall - brought down by the insanity of lending 125 per cent of inflated property values to people with limited means.

Now it is allowing 'repo hunters' to pick through the shattered lives of its former borrowers by selling off reclaimed houses for a discount.

Homeowners who overstretched themselves had been caught in a brutal bind: houses were clearly overpriced, but a form of collective hysteria fanned by lax regulation and profiteering kept the market roaring upwards.

If they stayed out, they risked being left even further behind. Purchasers were no longer nest-building. They had entered a casino, with their lives spinning on the roulette wheel.

The result? Anyone who bought a home within the past three years has lost money. If they bought without a large deposit, they are in negative equity. And if they lose their job during the downturn they face the real prospect of eviction, with more than 75,000 cases expected next year.

Key to this process were the buy-to-let jackals. Northern Rock was the most enthusiastic backer of these entrepreneurs.

While the economy appeared to be flourishing, their greed was largely overlooked. Dubious 'mortgage cashback' deals became just part of the background noise to Gordon Brown's 'boom'.

Now Northern Rock is revealed as playing a central role in its unravelling. After receiving a £27 billion taxpayer rescue last autumn, it moved swiftly to turf its customers out of their homes so it could repay the loan.

In the first six months of this year, its bailiffs were twice as busy as those of other banks.

Houses for sale in north London - many people have had their homes repossessed by the banks

Now the same cashback deals are available on Northern Rock's repossessed properties. Ajay Ahuja, who at one point had 1,100 of these homes on his books, is typical of this breed, boasting that prospective homeowners 'would not know a bargain if it hit them in the face' and urging investors to swoop in and buy the houses from him.

The reality is that ordinary buyers, looking to take their first step on the ladder or make room for a growing family, cannot take advantage of any 'bargains' because the banks have reined in their lending in a desperate attempt to shore up their balance sheets.

Meanwhile, mortgage-defaulters unlucky enough to see their former homes sold for knock-down prices will be saddled with debts they will struggle ever to clear.

At every stage, the Government has lagged behind events. Despite expert advice that the property boom was unsustainable, Ministers failed to restrain the banks by putting proper regulation in place.

Even the state's increasing stake in the sector has not translated into effective control: Mr Brown has 'requested' a slow-down in the rate of repossessions and 'urged' the banks to pass on interest rate cuts in full.

He needs to take more direct action to clear the cancer spreading through every organ of the financial system.