marketplace

Customer Service
Northern Rock, a FTSE 100 company, is committed to profitable growth in high quality business. As a responsible company it also recognises the importance of meeting the increased service expectations of customers. Good service at point of sale will encourage new business, while good customer "after sales" service will help retain existing customers.

Northern Rock's Customer Service Function reviews the delivery of our service standards, identifies improvements and to plan and implements changes. The Company recognises the importance of focused staff who are committed to providing long-term quality service to customers.

A Customer Service Management Team retains high level responsibility for delivering the overall programme objectives. A Customer Service Steering Group, comprising senior Executive staff, manages a series of prioritised initiatives, enlisting additional members of staff to focus on activities that require attention.

Key facets include:

  • Delivering comprehensive training programmes to enable new and experienced staff to provide good customer service.
  • Ensuring that individual members of staff take personal ownership of customer enquiries in order to reinforce customer relationships and speed up service times.
  • Improving standards of complaints handling in all customer-facing areas with a focus on procedures, people and training. Providing policy and service feedback to the line that identifies preventative action needed.
  • Operating incentive schemes to recognise and reward our best customer service performers.
  • Issuing regular corporate communications to emphasise the importance of customer service and to update staff on progress.

The Chief Executive has stated his key aims to staff;

"We must take personal ownership of our customers needs and requests. We must treat customers with respect and courtesy, as well as with the efficiency that has underlined our reputation."

"We must be fast, accurate and caring. We must remember to treat our customers the way we would want to be treated ourselves."

Treating Customers Fairly
The high level principles outlined by the Financial Service Authority require that all regulated firms treat their customers fairly. The fair treatment of customers is central to consumers having confidence in the financial services industry.

Significant progress has been made in raising standards in recent years. Work has been undertaken to improve the:

  • Information provided to customers;
  • The standards of risk management;
  • Transparency for customers in the industry, and;
  • The quality of complaint handling.

Further work will be undertaken to ensure the fair treatment of customers through the product life-cycle;

  • Product design and governance;
  • Identifying target markets;
  • Marketing and promoting products;
  • Sales and advice processes;
  • After-sales information and;
  • Complaint handling

North East Contact Centre of the Year Awards October 2005
At the North East Contact Centre of the Year Awards Northern Rock swept the boards winning more awards than any other organisation. We believe that these awards recognise not only in individual award winners but all staff and departments that contribute.

Northern Rock were winners in the categories:

  • Best New Entrant to Contact Centre Industry

and

  • Contribution to Business Success

In addition we were runners up in the categories:

  • Delivering Moments of Truth - two awards
  • Best New Entrant to Contact Centre Industry
  • Contribution to Business Success
  • Ambassador for Change
  • Outstanding People Developer

Consumer Credit (Advertising) Regulations 2004
Download the Guidance Notes PDF Document (823 kb)

The new regime for advertisements came into force from 31 October 2004. It replaced the concept of simple, intermediate and full credit adverts.

It sets out the requirements for:

  • When typical Annual Percentage Rates (APRs) must be shown. For example, when any other rate of charge is mentioned;
  • APR prominence relative to other information. For example, the APR should be one and a half times larger than other information;
  • A statutory definition of the typical APR. This is the APR at or below an advertiser reasonably expects, at the date the advert was published, that credit would be provided under at least 66% of the agreements entered into as a result of the advert, and;
  • The use of restricted expressions such as "guaranteed" or "pre-approved." These can only be used where there are no conditions.

All of the requirements are carefully considered for our credit adverts.

Consumer Credit (Agreements) (Amendments) Regulations 2004
Download Consumer Credit Regulations PDF Document (823 kb)
came into force from 31 May 2005.

There are separate sections on credit agreements including:

  • Key Financial Information;
  • Other Financial Information, and;/li>
  • Key Information (this includes examples of rebates on early settlement).

Lettering should all be of equal prominence, except for the headings which can be larger, bolder or underlined, etc.

There are other restrictions compared to the current regime.

Consumer Credit (Early Settlement) Regulations 2004
Came into force from 31 May 2005

The key features are as follows:

  • The Rule of 78 for early settlement is replaced with a new formula. The maximum ceiling for lenders is 28 days plus one month's interest;
  • Our formula is at least as favourable to customers as the prescribed formula;
  • The new formula affects unsecured loans where the interest is front-loaded;
  • There is a transitional period of five years for loans of more than ten years.

Consumer Credit (Disclosure of Information) Regulations 2004
Came into force from 31 May 2005.

The key features are as follows:

  • They will not apply to distance contracts or credit agreements secured on land.
  • We must give customers pre-contractual information in a manner which does not form part of the credit agreement.
  • It will link in with the requirement of the form and content of agreements.

The Financial Services (Distance Marketing) Regulations 2004
Provides customers rights when undertaking financial service business at a distance. Typically, this means by post, telephone or electronically.

In summary, the major protections for customers are as follows:

  • Detailed information is provided before customers commit to a contract;
  • Customers have a 14-day right of cancellation; and
  • There are restrictions on unsolicited marketing approaches.

With Northern Rock being a subscriber to the voluntary Banking Code, our customers enjoy the additional protection that compliance with the rules is actively monitored by the Banking Code Standards Board (BCSB) for personal customers who open current, savings and deposit accounts.

The Office of Fair Trading monitors compliance with the rules for those products regulated by the Consumer Credit Act. The Distance Marketing Regulations for these products became effective on 31 May 2005.

Lending Residential Lending

Residential Lending Policy

Objectives
Our overall objectives are:

  • to make loans to individuals, who will be able to afford to fully service the repayments during the term of the loan, with reference to proven cashflow. The status of borrowers with regard to their ability to meet loan payments and other financial commitments is fully appraised prior to loan approval
  • to develop a profitable book of loans, which are as fully performing and as fully secured as possible in order to minimise the risk of actual loss to the Company
  • to ensure the debt is fully secured on conventional saleable properties
  • to spread the risk of the loan book by underwriting a large number of small to medium sized loans secured across a range of security types over a wide geographical range
  • to charge a competitive rate of interest.

We recognise that we must maintain a balance between volume, risk and return in order to ensure asset growth is sensibly married with asset quality. In order to ensure we adequately manage risk we pursue a lending policy where:

  • all mortgage loans are properly secured on land in accordance with the relevant legal requirements
  • all mortgage loans are secured as a first legal charge via standard documentation, additional security may be taken where necessary
  • all unsecured loans are secured by a Credit Agreement
  • default occurs, to either seek sensible payment arrangements wherever possible to enable our borrowers to resolve their financial problems and ensure loan repayment without recourse to litigation or possession
  • potential loss arising from default is measured and adequately provided for
  • if enforced sales are necessary, all steps are taken to minimise the risk of actual loss to the Company.

All loans are negotiated in the sales network, within the policy and procedures approved by the Board. These are clearly documented in internal policy and procedures manuals. These policies and procedures are reviewed and adjusted on a continuous basis. An Executive Committee approves any substantive changes.

Credit and Operational Risk
Exposures to Risk are monitored monthly and any significant developments are reported to the Deputy Chief Executive.

  • Credit Risk - performance of our mortgage portfolio is measured against key exposures determined by the Board of Directors and trends as evidenced by arrears and possessions.
  • Operational Risk - includes areas such as fraud, IT and legal risk. This covers potential loss as a result of administrative error or failure to follow established procedures.

Stress Testing
An annual stress test of a range of mortgage account types is carried out to reflect any changes in the economic cycle. The testing covers the effect of the following on the mortgage book to show impact over a five-year period:

  • increases in interest rates
  • reductions in property values
  • greater propensity for customers to default.

Exposures and Triggers
The Company seeks to avoid concentration of its lending so as to preclude reliance and dependence upon any one particular section of the mortgage and housing markets. Periodic review is carried out to identify the elements of concentration and to take action to redress the trends. The key exposures and triggers, which are reviewed on an annual basis, include:

  • residential loans
  • loan to values
  • by borrower type
  • first time buyer
  • next time buyer
  • re-mortgage
  • size of loan
  • geographical area
  • by source
  • by product.

Credit Scoring
We use statistical techniques, known as credit scoring, to assess all applications for credit fairly and objectively. Credit Scoring is used to assess both new and existing customers applying for one of Northern Rock's credit related products. Our automated credit scoring systems help us to make appropriate lending decisions using the details supplied to us on an application form and information held on individual's credit files obtained from one of the UK's leading Credit Reference Agencies.

Responsible Lending
Northern Rock's approach to lending is pragmatic and aims to reinforce the principles of responsible lending and affordability in line with FSA Regulations without becoming intrusive.

Our salesforce at the point of interview check outgoings within the interview process and conduct assessments on the basis of the information received which is duly recorded.

Intermediaries are asked to complete a Confirmation of Affordability section in the application form, which is alongside all other regulatory information requirements from the intermediary.

Debt Management
It is a requirement of mortgage regulation to keep borrowers with regulated loans fully appraised of any arrears position and subsequent consequences. However, all loans that fall into arrears are treated individually, all decisions made are based on the circumstances of the customer. The company has adopted the same approach to both regulated and non-regulated loans, ensuring that all customers are treated fairly.

We try to resolve with the customer their financial priorities, where suitable concessionary arrangements are agreed. It is our aim to work with the customer to achieve a solution. Legal action for possession is always seen as a last resort.

We identify arrears at an early stage and a team of trained counsellors liase with customers to establish the reason for default and agree a way forward.

Activities are based on the Northern Rock stance of forbearance when genuine unforeseen difficulties arise during a customer's loan term.

Support and recovery procedures adopted by the Company may include a number of measures, depending upon circumstances:

  • To contact the customer as soon as a payment is missed, by telephone, letter or both.
  • Encourage the customer to talk to us to discuss the situation and examine ways to resolve the problems they are facing.
  • Customers are at times recommended to seek advice from third parties able to help (e.g. Citizens Advice Bureau, National Debtline etc.).
  • Remind customers about their Mortgage Protection Policy Insurance cover and the potential to claim assistance to get their loan performing again.
  • Develop a mutually acceptable arrangement for the clearance of the arrears.
  • Rescheduling loans to reduce payments.
  • If no customer contact is established and payments continue to be missed, external counsellors are instructed to visit the customers at home.
  • Capitalisation of arrears takes place once a regular payment performance is re-established.

In both the above areas, as appropriate the Company also adheres to the guidelines set out in:

  • Mortgage Conduct of Business Source Book
  • Council of Mortgage Lenders Statement of Practice
  • Office of Fair Trading Guidance on Debt Management

Commercial Finance
Through its commercial lending activities, Northern Rock provides mortgage financing to assist in the purchase of new businesses, the expansion of existing businesses and for investment in residential, industrial, retail or commercial property. We operate on a national basis, through a head office operation based in Sunderland and a network of regional sales offices distributed throughout the UK. Lending activity is restricted to the purchase or refinancing of existing property in England, Scotland and Wales.

Objectives
Our overall objective is to develop a profitable book of loans which are as fully performing and as fully secured as possible in order to give an agreed return on assets in line with quality and profitability targets set.

Our continuing aim is to limit the level of bad debt and loss whilst ensuring our lending stance supports our wider business objective of growth and profit.

Customers
Loans are provided to individuals, partnerships, limited companies and other organisations that will be able to afford to fully meet debt service levels during the term of the loan, with reference to proven cashflow.

Discrimination
The decision to lend is not affected in any way by the gender, race, religion or creed, sexual orientation, or disability of an applicant, except as directed by statute.

Policy Headlines
In order to ensure that we manage risk appropriately, we pursue a lending policy where:

  • loans are properly and fully secured, by a competent professional firm selected from our approved Panel of Solicitors, on conventional saleable properties by a first legal charge, using our standard documentation and supported where necessary by appropriate additional security in accordance with the relevant legal requirements;
  • lending activity is fully compliant with statutory and voluntary codes of practice, including anti-money laundering regulations and guidance;
  • the risk of the loan book is spread in terms of loan size, security types, industry sectors and geographical area;
  • properties are valued by competent professional firms selected from our approved Panel of Valuers;
  • properties are adequately insured against the main causes of damage;
  • the status of borrowers, with regard to their ability and willingness to meet loan payments and other financial commitments, is fully appraised prior to loan approval;
  • all loan applications are processed within agreed procedures to validate information and prepare loan documentation;
  • all loans are assessed by competent, prudent and experienced personnel and approved within delegated mandates and authority levels;
  • the terms and conditions of loans are competitive and reflect industry best practice;
  • lending enquires, applications and completed accounts are actively managed to agreed service level targets;
  • all loan accounts are constantly monitored and formally reviewed at least annually (other than very low impact exposures which are monitored for payment performance only) to identify cases which may default and remedial steps taken;
  • arrears are handled with tolerance and forbearance to arrive at a practical solution to enable the customer to repay the arrears and maintain payments going forward;
  • possession is avoided where a viable alternative exists;
  • potential loss arising from default is measured and adequate provision made;
  • if enforced sales are necessary, all steps are taken to minimise the risk of actual loss.

Lending Sectors
Our current policy is to lend on a limited range of commercial securities, primarily on an investment (rather than an owner-occupied) basis. The main lending sectors are:

  • Residential Investment
  • Office
  • Retail
  • Modern Industrial

We also undertake limited lending in the following sectors:

  • Nursing Homes
  • Professional Practices (i.e. Doctors/Dentists surgeries, Legal/Accountancy practices etc)

The following sectors are normally excluded from our lending policy:

  • Development Finance
  • Hotels and Guest Houses
  • Older Industrial (properties constructed more than 20 years ago)

Exposure Limits
To achieve a well-balanced and diversified loan portfolio, a set of Exposure Limits and Triggers exist against which new lending activity and the existing loan portfolio is monitored. This identifies any concentration of risk which may be emerging in any particular lending sector or geographic location, or in terms of exposure to loan size, loan to value ratio or loan terms which could similarly represent an unwelcome concentration of risk.

An Exposure is regarded as a key indicator and identifies where there may be a concentration of risk on our balance sheet which increases vulnerability to default and bad debt.

A Trigger is a device to monitor how we are performing against the projected shape and outturn of the portfolio and its purpose is to influence the direction of the portfolio.

Environmental Policy
Exposure to environmental risk is controlled in three primary ways:

  1. Lending policy - we seek to avoid lending scenarios which carry increased potential for environmental risk such as development finance and loans to industrial users. Lending activity in the industrial sector is focused on loans to investors secured on purpose built units on modern industrial estates. For the most part, lending policy excludes the sectors which are identified with the primary causes of land contamination.
  2. Credit approval - this involves a thorough appraisal of the security property offered and any identified environmental risks are fully investigated as an integral part of assessing overall risk.
  3. Professional Advisors - both valuers and solicitors play an important role in assessing the impact of environmental risk:
    1. The valuation instruction requires the valuer to comment on environmental considerations in respect of the subject and adjoining property, including the implications of the Environmental Protection Act 1990 and whether an initial Environmental Audit and/or fuller report is advisable. Additionally, the valuer is asked to comment on the potential for a reduced valuation in view of any issues. This raises any potential environmental issues or risks at a relatively early stage in the process so that they can be appropriately investigated and additional reports obtained, including an Environmental Agency report, if necessary.

      We would expect confirmation from the valuer that there are no (and are not likely to be any) significant pollution or similar risks associated with the property (including air, noise, chemical spills or long-standing site contamination etc).

    2. Solicitors representing Northern Rock are required to investigate environmental issues which will have been made known to them via the valuation report or by the applicant's legal representatives. Whilst the approach might vary, the solicitors will requisition information to identify the precise risks. This may include an Environmental Agency Report. Such environmental enquiries encompass a wider range of statute including the Public Health Act 1936, the Control of Pollution Act 1974, the Environmental Protection Act 1990, the Water Resources Act 1991, the Environment Act 1995 and any health and safety legislation.

By having no involvement with development finance we substantially reduce the risk associated with "brownfield development". By lending across a wide spectrum of property types we also have limited exposure to industrial processes. Lending within the sector is normally limited to light industrial/modern property. The typical loan would be a purpose-built industrial estate of multi-purpose units including manufacturing, storage and distribution. The typical borrower would be an investor and not an owner-occupier involved in multi-operation industrial processes. The properties concerned would appeal to small and medium occupiers and not to large-scale industrial complex users.

This widely diversified portfolio approach has allowed the spread of risk to be balanced. The appraisal process, supported by a panel of leading valuers, identifies areas that may require the benefit of an environmental risk assessment prior to progressing particular proposals, ensuring that significant risks including environmental risk are identified, investigated and mitigated. It is our policy in all such cases that specialist environmental consultant's reports are sought prior to proceeding with funding.

Acting solicitors also provide an Environmental Information Questionnaire to the borrower's advisor. The information provided highlights any previously unidentified risks, which can then be assessed by our professional advisors and experienced Lending Team who are fully aware of Northern Rock's environmental risk and impact assessment policy.

Our loan appraisal process incorporates an environmental risk assessment of the current/previous site usage and also the potential risk of contamination due to the activities of current or neighbouring occupiers. The security process contains environmental covenants by the borrower to ensure Environmental Compliance and enables us to take appropriate remedial action if the need arises. Finally, we also have a loan review and monitoring programme, which incorporates environmental performance into the loan management process for the life of the loan.

Money Laundering
We have clear and comprehensive policies and procedures, which provides the framework for compliance with anti-money laundering regulations when establishing new business relationships. Checks are made, in accordance with the requirements of those regulations, to verify the identity of the applicant and seek to prevent money laundering activities as well as assist with identification of fraud.

Training is given to all new Commercial Finance employees, and refresher training is provided at least annually to all existing Commercial Finance employees, to maintain awareness and competency.

Organisation
The commercial lending operation is organised into two distinct areas of operation:

  • A Credit Risk & Control function is responsible for the strategic development of the portfolio from a credit risk perspective and for administration operations;
  • A Sales & Marketing function is responsible for the strategic development of commercial sales.

In addition to the departmental structures, the following forums exist to independently monitor and control the Commercial Finance operation:

  1. Assets & Liabilities Committee (ALCO) - the primary purpose is to determine whether the shape of the commercial portfolio is in line with expectations and, if not, whether any change to policy and/or exposures or triggers are necessary.
  2. Credit Committee - the primary purpose is to approve loans outside of individual mandates and oversee the Commercial Finance operation.
  3. Exposures Monitoring Group - the primary purpose is to monitor loan and customer exposure and the risk profile of the commercial lending operation.

Workforce
Management is responsible for ensuring that the employees within the function are suitably qualified and experienced to perform the duties delegated to them.

Employee Base
The Commercial Finance employee base totals 112 staff across 9 geographic locations. The distribution is as follows:

Location
No of Employees
Male
Female
Head Office, Sunderland
65
18
47

Edinburgh

5

3

2

Newcastle upon Tyne

7

3

4

Leeds

6

2

4

Manchester

4

1

3

Birmingham

7

4

3

St Albans

8

5

3

Bromley

4

2

2

Bristol

4

1

3

Non-office based

2

1

1

Totals

112

40

72

Training & Education
Training is an on-going aspect of every employee within Commercial Finance, provided on a needs basis, through the following methods:

  • day to day "on the job" training
  • internally run courses
  • external courses and seminars

The course content will either be aimed at building specific skills or developing the delegate's knowledge and depth of understanding of a topic related to Commercial Finance operations.

All employees are formally appraised on an annual basis and the identification of training needs is an important aspect of this process.

Employees are encouraged to undertake relevant courses of study to enhance their knowledge and understanding of the industry. The relevant qualification is Associate of the Chartered Institute of Bankers although other courses, internal and external, are available and encouraged as appropriate to individual needs.

Key Aims for 2006

  • To meet the volume and growth targets set through quality lending;
  • To maintain Lending Policy which continues to support growth objectives whilst satisfactorily controlling exposure to risk within defined parameters;
  • To pro-actively monitor and manage the loan portfolio to ensure adequate diversification and control of risk.

Retail Funding
The Company's aim is to deal with customers, staff and stakeholders in a responsible and ethical manner, ensuring compliance with appropriate regulations and guidance.

Northern Rock provides full or partial Current Account facilities with a low minimum balance entry point for any applicant who can satisfy our money laundering reviews, and where appropriate, other credit scoring checks.

The Company takes great pains to comply with the Banking Code in all our dealings with customers. As members of BACS we are also implementing all phases of the transfer of Direct Debits and Standing Orders project, which concluded in November 2004. This was set up to meet recommendations from the De Anne Julius Review of Banking Services, specifically to do with the speed and ease by which customers can move from one Current Account to another. Northern Rock also provides a guarantee known as the Savings Pledge which goes well beyond the provisions of the Banking Code to ensure full communication of interest rate changes and new product launches to our Savings customers.

Corporate practices and initiatives are constantly reviewed and revised in the fields of Customer Service and Product Management including:

  • Engagement with Customers - the Savings Pledge* helps to ensure transparency in communications with customers, in addition we comply with the Financial Ombudsmen Scheme requirements in our dealings with customers complaints.
  • Availability of products - products are offered through a variety of channels (branch, postal, telephone and internet) and we also provide off shore products via our subsidiary Northern Rock Guernsey. Current accounts can be operated via branches and/or by post and some instructions can be accepted by telephone.
  • Quality of Financial Advice - Northern Rock is not regulated to provide financial advice but have a relationship with Legal and General plc to whom we can refer customers requiring this service.

*Northern Rock's Savings Pledge Notification of the Launch of New Products
We write to advise customers of any new variable rate product we launch which is of a similar type to that already held by our customers.

Keeping the Customer Updated
A summary is supplied at least once per year to our customers, giving details of our savings accounts and the interest rates that apply to them.

Management of Current Account Overdrafts
The Company recently reviewed and revised our debt recovery procedures with a view to ensuring the commercial efficiency of the process, sensitivity in our dealings with customers and the best outcome from a course of action for both Northern Rock and our customers. Current procedures aim to ensure that all avenues are explored in the debt recovery process and to prevent large, unauthorised, overdrawn balances. The Company makes every attempt to contact customers at a timely stage.

Debt Recovery procedures for current accounts include actions and principles to ensure customers are dealt with sympathetically. The Company will:

  • Encourage customers to contact us at an early stage if they are experiencing difficulties.
  • Provide customers with useful contact telephone numbers (e.g. Citizens Advice Bureau).
  • Where appropriate, send the customer a "Dealing with Debt" leaflet.
  • Consider freezing interest and overdraft charges.
  • Work with the customer and debt management companies to come to suitable arrangements with the customer for clearing overdrafts.
  • Assist customers in assessing their financial position.

Products

E-Commerce
E-commerce is an integral part of Northern Rock's strategy to provide a cost effective and efficient distribution channel. A number of services are currently available online:

  • A market leading savings products
  • Unsecured personal loan application with online decision
  • Mortgage application with online decision
  • Intermediary services, including mortgage applications with case tracking, online quotations and decisions
  • Northern Rock shareholder dealing services

The E-commerce service provides all of the usual benefits of online business:

  • Secure home banking
  • Access via the internet anytime
  • Convenience
  • Reduced time to market of new product ranges
  • Attractive rates

Our online customers are supported with both telephone and email services, which are available to assist them in conducting their business online with minimal disruption.

Security is an essential part of our online service and this is maintained through a vigilant approach. Industry standard procedures are in place and our services are regularly audited by third party security specialists to ensure compliance. Our customers are safe in the knowledge that we have a proven, secure service.

The environment may also benefit from the deployment of our online banking service. We have greatly reduced the amount of paper based application forms that we used to open new accounts and we are now looking to increase the use of electronic administration forms internally, through use of our Intranet.

Northern Rock's online channel ensures that our customers have a reliable, secure and alternative banking service. Online banking helps to reduce costs, which benefits our customers through attractive rates. Finally, the reduction of unnecessary waste has a positive impact on our environment.

Additional information on products and security measures being used may be accessed via the Northern Rock website

Lending

Lifetime Mortgage
Equity Release particularly appeals to elderly homeowners who may be "asset rich, cash poor" and can find the extra funds a timely boost to their personal budget.

In April 1999 the Company introduced a standard Lifetime Mortgage which starts at a release amount of 20% of the property value for homeowners aged 60-66, rising up to a release amount of 50% for a homeowner aged over 89.

Homeowners who have reached retirement with a mortgage free property are attracted by the fact that there are no monthly repayments, as the interest is rolled up and added to the amount borrowed. Safeguards such as security of tenure and a guarantee that any shortfall will be met should negative equity arise are given.

Lifetime Mortgage Mortgage Market Developments
In response to the customer market requirements, Northern Rock has developed two further Lifetime mortgages:

Cash Plus Lifetime Mortgage
Provides the customer with a monthly cash release and an optional lump sum payment that can be used for any legal purpose. No monthly repayments are required, and the mortgage is usually paid off when the house is sold following the borrower's death (or the last borrower in the case of a joint application). The customers estate receives any remaining equity there may be following repayment of the mortgage, which consists of any monthly cash releases, the lump sum that may have been taken at the start of a mortgage and any charges which the customer have opted to add to the loan plus the accrued interest.

If the agreed sale price is not sufficient to repay the outstanding balance, Northern Rock guarantees that the estate is not required to pay any shortfall that may exist under our Negative Equity Guarantee.

Protected Equity Mortgage
Provides all the benefits of the 'Lump Sum Lifetime Mortgage' in providing a lump sum cash amount for one-off expenses. However, some customers may be a little concerned that when repayment of the mortgage is due, and the property is sold, there may not be sufficient equity left in the property to leave an inheritance for their family/ the Protected Equity Release Mortgage not only allows the customer to take a cash lump sum, but also guarantees to protect a portion (up to 50%) of the eventual sale value of the home. This provides the customer with the additional peace of mind in the knowledge that they will be leaving a guaranteed percentage of the property's eventual sale value to their loved ones.

Safe Home Income Plans (SHIP)
The SHIP (Safe Home Income Plans) organisation accepted Northern Rock as members in June 2000.

SHIP is an organisation supported by the leading providers of home income plans and equity release mortgages. It was launched in 1991 and is dedicated entirely to the protection of planholders and promotion of safe home income plans. All participating companies are pledged to observe the SHIP Code of Practice and to display the SHIP logo in their brochures and other printed material as a guarantee to their customers.

The SHIP code binds these companies to provide a fair, easy to understand and full presentation of their plans. Any scheme endorsed with the SHIP logo will be properly explained and entirely safe. As a further safeguard, the customers own solicitor overseeing the transaction on their behalf, must sign a certificate to acknowledge the essential features and implications of the chosen SHIP Plan have been drawn to their attention. No SHIP protected plan can proceed without a signed certificate.

Borrowers are urged to seek independent financial and legal advice and to consult family members before committing themselves to an equity release mortgage because of the potential impact on any inheritance. One trend today is that children are less dependent on the proceeds of the sale of their parent's home so they are more likely to be pleased that elderly relatives are enjoying an enhanced lifestyle.

Customers can use the funds for any legal purpose, but typical examples would be to visit grandchildren abroad, speed up medical treatment, replace an old car or for home and lifestyle improvements.

Additional information on products and security measures being used may be accessed via the Northern Rock website

Age Concern Lifetime Mortgage
We launched a new Lifetime Mortgage product with Age Concern on Monday 17 January 2005. Age Concern is an established charitable organisation with a strong reputation for helping older people.

Age Concern has a number of partnerships with various organisations which aim to offer value for money for customers through a varied range of products and services. Age Concern recognises that for many older people, releasing equity locked up in their homes is often the best, and in some cases the only option to maintain a good standard of living into retirement.

As a result, Northern Rock has entered into an agreement with Age Concern to promote a jointly branded Lifetime mortgage which specifically meets the needs of Age Concern customers.

Mortgage Product Availability
Northern Rock strives to make mortgage products understandable and accessible to all. All our present and new customers are able to take advantage of any of our mortgage products in the current range, therefore any existing customer can, subject to contractual terms, transfer to any of Northern Rock's new mortgage products. A comprehensive mailing programme supports this.

Mortgage Product Costs
As a specialised mortgage lender, Northern Rock has a reputation for offering competitive deals.

Our borrowers should always consider the benefits of the whole package - and this means any fees and charges as well as the rate. Our current range, for example, offers customers the choice of mortgages with or without an arrangement fee. Customers have a further choice of taking advantage of our Help With Costs option which they can use towards such costs as arrangement fees, valuation fees or legal expenses.

We place great emphasis on transparency and reasonableness in our dealings with our customers. In accordance with regulatory requirements, we provide tariffs of our charges to customers when they first come to us. These tariffs are updated when applicable during subsequent correspondence with our customers and are available on the website and on demand.

We were also among the first lenders to make our new products available to existing customers. They can still switch to those new products, subject to terms and conditions, even if they are in an early repayment charge period under their existing mortgage.

We believe we provide a competitive and comprehensive range that allows customers to make the final choice of product in the light of their individual circumstances.

Mortgage Interest Payments
Northern Rock offers a wide range of mortgages to suit the individual needs of borrowers. The majority of the current range are fully flexible offering the customer overpayments, underpayments, payment holidays and daily interest. Borrowers who make regular overpayments are able to reduce the total interest charge and potentially shorten the term of the loan.

Mortgage Indemnity Guarantee
A Mortgage Indemnity Guarantee (MIG) is a single premium insurance policy charged on loans above a specific LTV. MIG protects a Lender in the event of a property being re-possessed and sold for less than the outstanding mortgage amount. The insurance premium only protects the Lender and the Insurer still has the right of recourse to chase the borrower for the outstanding amount.

Premiums overly complicate the loan process for borrowers and it is usually the cash challenged first time buyers who are charged MIG.

To encourage transparency in the loan process Northern Rock does not charge its borrowers MIG premiums.

Lending Awards

  • Financial Advisor Mortgage Awards 2005 - Equity Release Lender of the Year
  • Mortgage Strategy Technology Service Awards 2005 - Gold Standards Winner
  • Legal and General Mortgage Club Awards 2005 - Best Lender for Products
  • Pink Home Loan Awards 2005 - Best Lender for Lifetime Mortgages
  • Mortgage Advisor Magazine Awards 2005 - Best First Time Buyer Mortgage Edge
  • Online Technology Awards 2005 - Online Lifetime Lender of the Year

Customer Research
Following a review of our existing programme, we have appointed a research consultancy and will work together to roll out a comprehensive customer research programme taking us to the end of 2006.

Expanded to include a broader range of our customers, we have already successfully undertaken the first phase of research which involved customers with new loans. We are working to ensure that the research findings will be translated into actionable, usable formats and disseminated throughout all business areas. Tracking surveys will then measure the impacts of any changes and improvements made to our processes as well as ensuring that high standards of customer service are maintained.

The Northern Rock Foundation and Financial Literacy
Northern Rock Foundation is an enthusiastic supporter of schemes to help people access financial support and manage their money better. Money and debt advice, welfare rights work and development of credit unions are all priorities under the Foundation's grant programmes.

In 2005 the Foundation provided grants to Citizens Advice Bureaux and other advice agencies to provide specialist advice for people in debt, to help prevent people from falling into debt and to support vulnerable people in applying for the welfare rights benefits to which they are entitled. The Foundation also supported the development of credit union services within the region.

In 2005 funding for these kinds of projects totalled more than £750,000.

Examples of the work funded in 2005 include:

  • Washington Citizens Advice Bureau: £124,514 over three years to help people with financial problems, and to provide advice service for working disabled people in Sunderland.
  • Middlesbrough Citizens Advice Bureau: £87,766 over three years to develop its telephone advice service.
  • Millom and District Citizens Advice Bureau: £51,000 over three years to continue its money advice service in Millom, Copeland, and to offer home visits for housebound or isolated clients.

Complaints Handling
A review of complaint handling by the Financial Services Authority (FSA), to achieve improvements to the process, resulted in the implementation of a regulated complaint handling regime at the end of 2001 and the emergence of a new independent arbitration service to financial services consumers, the Financial Ombudsman Service (FOS) .

Access for retail consumers to mechanisms for dealing with complaints about Financial Services firms is now a key part of the regulatory regime.

There is a general over-arching requirement for firms to have in place and operate an appropriate and effective Internal Complaints Procedure.

From a customer's standpoint three things matter if something goes wrong.

They need to know

  • where to complain;
  • how to complain; and
  • they need to feel confident that their complaint will be dealt with seriously.

Managing complaints well is a way to improve the products, services, confidence and public standing of the Company in the eyes of our customers.

We support the FSA's aim in seeking to improve the standard of complaint handling across the industry and the benefits of gathering and utilising the intelligence to identify problem areas. We monitor complaints closely and have taken active steps to ensure our procedures positively embrace the expectations and requirements of the FSA. We aim to place a high level of importance on complaint handling and seek to ensure customer satisfaction.

Northern Rock has in place an Internal Complaints Procedure, which sets out how all complaints received will be dealt with. Our 'Guide to Northern Rock's Internal Complaints Procedure ' leaflet is freely available to customers.

Staff are trained to ensure they are able to identify and handle appropriately any 'expression of dissatisfaction' expediently to comply fully with the statutory requirements incumbent upon us.

All complaints received are recorded and investigated and the outcome is communicated to a complainant.

Media

Advertising
There are now two regulatory bodies who control broadcast and printed advertisements, the Office of Communications (Ofcom) and the Advertising Standards Authority (ASA), both of whom work on the premise that all advertisements should be legal, decent, honest and truthful. Ofcom control television, radio, internet, telephony and cinema advertisements while the ASA control newspaper, magazine, outdoor poster and direct marketing advertisements.

Customer Literature
Northern Rock is committed to developing life long relationships with customers and one of the main ways this is achieved is through customer communications. A review programme is in place to ensure that the Northern Rock brand is presented in a consistent and professional manner to all customers. There are various pieces of literature available to customers depending upon the product chosen - all of which are available in different formats to suit the customers needs.

Northern Rock ensures that all advertising complies with Advertising Standards.

Brand Guidelines
During 2004 the Company introduced a set of formal Brand Guidelines. The guidelines are available on the Northern Rock Intranet and via CD Rom for all staff involved in producing customer communications.

The content and information they contain is to ensure consistency in terms of style, format and content for written communications throughout the Company.

Business Continuity
Business Continuity Planning
Northern Rock's Business Continuity arrangements are under constant review in order that our recovery priorities, plans and procedures remain up to date and relevant. They aim to ensure that in the event of an 'incident' or major failure, key functions can resume their activities at the earliest opportunity, no matter what the circumstances.

Consideration has been given to the physical, technical and human aspects of business disruption and this is reflected in the plans and procedures that are in place.

The Company's growth in recent years and it's greater reliance on Information Technology has prompted the development of improved and enhanced arrangements for both Mainframe and Server recovery. Appropriate recovery measures are also in place for our Telecommunication and E-Commerce facilities.

For situations that damage or otherwise deny access to an office building (or buildings), a recovery strategy has been developed to relocate key functions to alternative sites where business can resume with a minimum of delay. A comprehensive infrastructure of recovery teams is in place to manage and co-ordinate any recovery effort.

A rolling programme of tests is in place to ensure plans and procedure can achieve their objectives and our Business Continuity arrangements are also subject to periodic review by both Internal and External Audit. Northern Rock is a corporate member of the Survive Group , a forum for expertise and information exchange among business continuity practitioners and staff from the main support functions regularly attend courses and seminars on business continuity-related subjects and issues.

Access to Services

Support for Customers
Northern Rock has produced a leaflet "Making It Easier" for customers to clarify how the Company can help customers with specific needs.

A standard paragraph in most correspondence invites customers to notify the Company of any special needs. A register is held in the Customer Relations Department, and arrangements are made to address any special needs.

Northern Rock has supplied all branches with cheque templates and magnifying glasses to assist customers with visual impairment.

All offices visited by the general public have been supplied with a portable induction loop system to assist communication with customers with a hearing disability. All appropriate staff have been trained in its use.

Alternative arrangements are made for disabled customers requiring products and services only available over the telephone or Internet.

Alternative access requirements for staff and customers are now co-ordinated by a specialist disability unit within our Health and Safety team.

Sports Sponsorship
Northern Rock supports sport on international, national and regional levels. The Company provides sponsorship to clubs, events and personalities in football, cricket, golf, tennis and rugby.

Football
Northern Rock is the main sponsor of Newcastle United until 2010 season. Newcastle is one of the major players in the English Premier League, playing to a 53,000 sell-out crowd every home match. The team is home to international stars like Alan Shearer, Michael Owen, Emre, Nolberto Solano and Shay Given.

Rugby
Northern Rock is the main sponsor of Newcastle Falcons. Currently coached by the ex-England and British Lion Rob Andrew and features many international stars including the 2003 world cup hero Jonny Wilkinson and Matthew Burke and Colin Charvis.

Cricket
The Company sponsors two County cricket clubs, Durham and Middlesex.

Durham is the newest county team to play in England, attaining first class status in 1990. Durham play at the new Riverside ground at Chester le Street - the newest Test Match venue for over 100 years. North East born Steve Harmison and Paul Collingwood are England stars in the Ashes series.

Middlesex has played at Lords, the historic home of cricket, since 1877. Middlesex is one of the most successful county sides of recent times.

Golf
Northern Rock's commitment to North East golf was cemented by Northern Rock's backing of a top PGA regional event at Matfen Hall for the fourth year running.

The £17,000 Northern Rock Masters took place on 10th to 12th August 2005, at the Northumberland course and was preceded by a junior open day on 9th August 2005 allowing hundreds of youngsters to receive coaching from PGA professionals.

Tennis
The Northumberland and Durham Tennis League are sponsored by the Company and are the largest participation of non-professional tennis players in the North East. The Company is committed to encouraging adults and children in the North East to play competitive tennis.

© Northern Rock plc. 2008