Northern Rock's plan to increase the number of new mortgages it offers is expected to benefit the whole lending sector.
The Treasury's announcement that Northern Rock will increase new mortgage lending by £14 billion over the next two years has been welcomed by the Council of Mortgage Lenders (CML). The industry body has suggested that this will improve the capacity for other lenders to offer new loans.
In a renewed business plan for the nationalised bank, the Treasury explained that instead of reducing Northern Rock's mortgage book, it intends to back new lending. Around £5 billion in new mortgages is to be made available this year, with an additional £3 to £9 billion released in 2010.
Commenting on the announcement, CML director general Michael Coogan said that "anything that improves the supply of lending is a positive".
"Mortgage redemptions funded nearly all the £18 billion of the loan that Northern Rock repaid to the government. This was £18 billion that had to be absorbed by the rest of the other mortgage lenders. By removing this market pressure, other lenders as well as Northern Rock should experience an increased capacity to lend to other borrowers," he added.
This new plan for Northern Rock follows the prime minister's calls at the weekend for a change to the mortgage sector. In an article written for the Observer, Gordon Brown called for an end to 100 percent mortgages and for a more sensible approach by lenders when making loan approvals.
