Marketplace

Customer Service

Northern Rock 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 implements changes. However, the Company recognises the importance of focused staff who are committed to providing long-term quality service to customers. Accordingly, the company's service expectations are supported strongly by senior Executive staff, across the business.

The Company operates clear internal guidelines for the service standards required when dealing with customers. To deliver these, we are actively investing in the staff, premises, equipment and training.

Recent and ongoing initiatives include:

An incentive scheme that recognises and regards the best customer service performers across the business.
A team of customer service coaches, working alongside staff in our larger Contact Centres.
Service reporting to enhance identification of potential corporate pressure points.
Individual project groups to tackle key service issues and opportunities.

These initiatives are strongly supported by the Chief Executive, who has stated his key aims:

"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 Services Authority require that all regulated firms treat their customers fairly. This is central to consumers having confidence in the financial services industry. The fair treatment of customers is also central to Northern Rock's corporate culture and significant progress has been made in recent years to further improve the fair treatment of customers in the areas of:

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

During 2006 Northern Rock has continued to review and improve processes and systems throughout the customer journey in order to deliver improved outcomes to customers in terms of fair treatment.

Two key initiatives during 2006 have been the increased use of customer research and improvements to our complaints handling process. Customer research is central to the measurement of our success in treating our customers fairly and to identifying improvements to systems and processes. In respect of complaints handling, not only do we ensure the fair treatment of customers making a complaint but the causes of complaints are identified and used to drive improvements in our processes.

Engagement with Customers

The Company endeavours to comply with the Banking Code in all our dealings with customers. As members of the Bankers Automated Clearing System (BACS), Northern Rock has also implemented 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 its 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 handling customers complaints.
Availability of products - products are offered through a variety of channels (branch, postal, telephone and internet) and we also provide offshore 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 has 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

We inform savers directly each time we change their rate.

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.

Access to Services

Support for Customers

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

Making It Easier (37 kb pdf)

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

Northern Rock has supplied all branches with a customer care pack that includes cheque templates, magnifying glasses and hi-grip pens to assist customers.

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.

Customer Research

Northern Rock launched an extensive Customer Research Programme at the end of 2005. Outsourced to an external consultancy, the research establishes customers' attitudes as well as objectively measuring satisfaction levels with our products and services across a range of product areas and customer types.

Over 3,500 customers have been interviewed so far. The results overall have been very positive and enlightening, helping us to target key areas for further improvement.

The findings from our customer research are widely circulated to our staff, which in turn helps to ensure that they are acted upon. In those areas where we are not performing quite as well as we would hope, the key issues are recorded centrally, with the relevant departments developing an action plan for improvement. In this way we are able to monitor our progress and the impacts of our actions from one research wave to the next.

Questions range from how well our staff dealt with our customers (eg “did they listen enough to what you had to say?”, “did they have the knowledge to deal with your enquiries”) to the quality of our literature (“clear and easy to understand?”, “anything hidden in the small print?”) while establishing that the product was exactly as they expected (“was there anything about the product that you hadn't been made aware of?” ).

Customer satisfaction levels across different product areas are shown below – pleasingly the “lowest” satisfaction levels started at 80%.

An additional, and arguably a more accurate barometer of customer satisfaction is advocacy, since a customer will only recommend a product or company to their family and friends if they themselves are completely satisfied. The chart below illustrates that at least nine out of ten customers would recommend Northern Rock to their family and friends.

Within the research programme we ultimately ask customers “and are you happy with your [product]?” - the results speak for themselves:

"...and are you happy with your [product]?"	"Yes"%
Together mortgage (new customers)	99%
Flexible mortgage (new customers)	97%
Lifetime mortgage (new customers)	95%
Unsecured Loan	100%
Personal Secured Loan	100%
Mortgage Review	97%
All mortgages (existing customers)	93%

Complaints Handling

In 2001, The Financial Services Authority (FSA) introduced a regulated complaint-handling regime and an independent arbitration service called the Financial Ombudsman Scheme (FOS). The aim was to allow customers greater access when complaining about Financial Services forms. This was supported by general requirements upon companies to operate an effective Internal Complaints Procedure.

Our “Guide to Northern Rock's Internal Complaints Procedure ” leaflet is freely available to customers and sets out how all complaints will be dealt with. The document is also accessible through the following pdf:

Internal Complaints Procedure (66 kb pdf).

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.

Northern Rock's staff are trained to ensure they can identify and handle appropriately any “expression of dissatisfaction.”

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

The principles of 'Treating Customers Fairly' are applied throughout the complaint handling process. Complaints are reviewed by the Customer Support operation - separate from line management of the operation in question. Compensation, where appropriate, is benchmarked against a clear template, to ensure consistency.

We support the FSA's wish to improve complaint handling across the industry and recognise the benefits of using feedback to identify problem areas. Our senior management are updated with feedback from each complaint, so that follow-up action may be taken.

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. The Executive Committee approves any substantive changes.

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.

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.

Lending Products

Lifetime Mortgage

Equity Release particularly appeals to elderly homeowners who may be "asset rich, cash poor" and do not wish to leave their current property. They 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. We offer safeguards such as security of tenure and a guarantee that any shortfall will be met should negative equity arise.

Lifetime 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 death of 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 customers 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 under our Negative Equity Guarantee that the estate is not required to pay any shortfall that may exist.

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 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 a member 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 that 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

Northern Rock entered into an agreement with Age Concern in January 2005, to promote a jointly branded Lifetime mortgage which specifically meets the needs of Age Concern customers.

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.

Customer Retention Strategy and Direct Mail

Northern Rock recognises the importance of retaining our existing customer base, as well as attracting new customers. As a result we have a clear retention programme for both Mortgage and Savings customers. We also have a transparent policy of allowing all of our existing mortgage customers access to the entire produce range available to new customers.

We contact our customers prior to the end of the term of their product and provide information and assistance to enable them to transfer to a new product in our current range (subject to the terms of their existing product) with ease. This is a straightforward approach, which can be arranged by customers in the comfort of their own home.

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.

Northern Rock's payment default position is consistently half the UK average. This is attributed to both our front end lending policy decisions which ensure that our customers can afford their loans and also the support we provide when difficulties arise.

We try to resolve with customers 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 liaise 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 customers 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 with Mortgage Protection Policy Insurance cover about their policy 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 customer 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

Regulatory Requirements

Northern Rock is required to adhere to various regulations relating to our corporate lending and advertising among these are:

Consumer Credit (Advertising) Regulations 2004

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

Came into force from 31 May 2005.

There are separate sections on credit agreements including:

Key Financial Information;
Other Financial Information, and;
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 Awards

We have a number of training programmes for staff to support the provision of excellent service at all points of the customer journey and we continue to strive for improvements in all areas. It is pleasing to note that our efforts have been rewarded by a number of industry awards including:

Mortgage Strategy Technology Service Awards 2006 - Gold Standards Winner
Mortgage Strategy Best Lifetime Mortgage Lender 2006 – Winner
Hamptons Mortgages, Industry Achievement Lender 2006 – Winner Outstanding Industry Achievement Award
Mortgage Introducer Awards 2006 – Best Provider of Lifetime Mortgages
Mortgage Edge On-Line Technology Awards 2006 – Best First Time Lender
Mortgage Edge on-Line Technology Awards 2006 – Best Lifetime Mortgage Lender
MoneyQuest - Best Flexible Lender
Mortgage Edge - Best First Time Buyer
Mortgage Edge - Best Lifetime Mortgage Lender
Mortgage Edge First Time Buyer of the Year - 1st Placed
Financial Advisor Awards 2006 - 2nd Placed Equity Release Lender
Inaugural Mortgage Strategy Technology Service Awards - Gold Standard

In addition to these awards, a poll of mortgage brokers carried out by Mortgage Edge Magazine saw Northern Rock come out number one lender for service.

Unsecured Lending Awards

Moneyfacts - Commended for best Personal Loan provider -

Moneyfacts - Highly commended for best Credit Card Provider

North East Contact Centre of the Year Awards October 2006

At the North East Contact Centre of the Year Awards Northern Rock was again pleased that a member of our staff received an award in 2006. We believe that these awards recognise not only individual award winners but all staff and departments that contribute.

The Brightest New Star Category was won by Andrew Simmons from Northern Rock, the award was sponsored by Jobs@Pertemps

Commercial Finance

Through its commercial lending function, Northern Rock provides mortgage financing to fund property investment activity.

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 new and 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.

Lending Sectors

Our current policy is to lend on a limited range of commercial securities including:

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)

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 enquiries, 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.

Exposure Limits

To achieve a well-balanced and diversified loan portfolio, new lending activity and the existing loan portfolio is monitored against an expected risk profile, which is set annually. This identifies any emerging concentration of risk 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.

Environmental Policy

Exposure to environmental risk is controlled in three primary ways:

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.
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.
Professional Advisors – 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).
1. 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 consultants 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.

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 three distinct areas of operation:

A Sales & Marketing function is responsible for the strategic development of commercial sales.
An Underwriting function, which is independent of the Sales & Marketing function, is responsible for the credit quality of new lending.
A Monitoring & Review function and an Administration function responsible for overseeing the on-going credit quality of existing loans, debt management activity, compliance, operational risk, production of management information and loan administration operations.

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

(i) 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 the expected risk profile are necessary.
(ii) Credit Committee – the primary purpose is to approve loans outside of individual mandates and oversee the Commercial Finance operation.
(iii) 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 117 staff across 9 geographic locations. The distribution is as follows:

Location	Establishment	Male	Female	Current Vacancies
Head Office, Sunderland	69	18	47	4
Edinburgh	5	3	2
Newcastle upon Tyne	8	4	4
Leeds	5	3	2
Manchester	6	2	3	1
Birmingham	7	2	5
St Albans	8	5	2	1
Bromley	4	2	2
Bristol	4	2	1	1
Non-office based	1	1
Totals	117	42	68	7

Data as at 14 November 2006

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.

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 identification requirements and, where appropriate, other credit scoring checks. In addition, the Company offers a wide range of other products available through branches, by post, by telephone, and on-line .

Management of Current Account Overdrafts

The Company regularly reviews and revises its debt recovery procedures with a view to ensuring the commercial efficiency of the process, sensitivity in dealing with customers and the best outcome 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. A clause exists in our terms and conditions leaflet which is sent to the customer within the Current Account Pack, stating:

“If you are in financial difficulties please contact us as soon as possible to discuss your circumstances with a view to developing a repayment plan [Section 18 (Miscellaneous), reference (f)]”

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

Northern Rock, via its Savings Pledge, ensures that customers are kept updated on new Savings products and services, a commitment that also provides complete transparency of communication between the Company and its customers.

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:

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 for new product ranges
Attractive rates

Our online customers are supported with both telephone and e-mail 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.

There are also environmental benefits 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

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. 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 Loan to Value ratio (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.

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 2006 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 benefits to which they are entitled. The Foundation also supported the development of credit union and other financial services for disadvantaged communities within the region.

By November 2006 funding for these kinds of projects totalled more than £1.2 million.

Examples of the work funded in 2006 are:

Age Concern Barrow and District: £190,000 for a holistic, one-stop service providing debt and welfare advice to people over 50.
Street North East: £90,000 towards the running costs of a micro-loan fund based in Newcastle .
Disability Association Carlisle and Eden: £45,000 to fund a welfare benefits advice service for disabled people in Cumbria .
South Tyneside Credit Union: £35,000 to purchase computer equipment and contribute towards running costs.

Unclaimed Assets

A banking industry working group was established in February 2006, under the joint auspices of the British Bankers' Association (BBA) and the Building Societies Association (BSA), to consider the requirements for the implementation of an unclaimed assets scheme (dormant accounts).

Impetus was given to this proposed scheme in an announcement made by the Government in the Pre Budget Report on 5 December 2005, further amplified in the main Budget Statement in March 2006.

Northern Rock is a member of the joint BBA/BSA working group that is currently liaising with HM Treasury and the Commission on Unclaimed Assets. The role of the working group has been to independently consider the Government's proposals and to advise on the potential direction and means of distribution of funds arising from the scheme.

A good deal of work still needs to be completed before implementation of the proposed scheme, which is currently scheduled for late 2007. However, Northern Rock fully supports the fundamental objectives of such a scheme, with its past record of charitable donations via The Northern Rock Foundation amply evidencing this commitment to giving back to the community.

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 benchmarked against FSA Guidelines. They aim to ensure that in the event of an 'incident' or major failure, key functions can resume their activities at the earliest opportunity.

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 its 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. 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. Staff from the main support functions regularly attend courses and seminars on business continuity-related subjects and issues.

Media

Corporate Identity

During 2006 the Company refreshed its Corporate Identity and issued a new set of Brand Guidelines. The guidelines are available to all staff to ensure consistency in using our identity in communications across the company. An external version for third parties was also introduced to ensure the Company's branding remains consistent.

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 which work on the premise that all advertisements should be legal, decent, honest and truthful. Ofcom controls television, radio, internet, telephony and cinema advertisements while the ASA controls newspaper, magazine, outdoor poster and direct marketing advertisements.

Media Audits

Media Audits via "Accenture" are independent and measure the effectiveness of our media buying by measuring our media spend and buying performance against a media spend pool of over £200m from 100 or so other advertisers.

In addition to conducting a media audit, Accenture also conduct an annual brand health review of not just our advertising and its effectiveness but also measuring consumer and financial advisor perceptions of our brand (i.e. service issues, product portfolio, call centres etc).

This research is constructed using 8 focus groups around the UK excluding the north east and some 400 in home/ telephone interviews. The research panel is made up of 50% Northern Rock customers and 50% customers of other financial institutions.

Since Romeo the frog was introduced three years ago we have achieved our highest brand awareness and recognition scores.

Customer Literature

Northern Rock is committed to developing lifelong relationships with customers and one of the main ways this is achieved is through customer communications. An ongoing 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 customer's needs.

Northern Rock ensures that all advertising complies with Advertising Standards.

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 the 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 such as Scott Parker, Michael Owen, Emre, Nolberto Solano and Shay Given.

Rugby

Northern Rock is the main sponsor of Newcastle Falcons . The only professional Rugby Union side in the North East The Falcons are currently coached by John Fletcher and feature many home grown international stars including England's 2003 world cup hero Jonny Wilkinson, Matthew Burke, Jamie Noon and Matthew Tait.

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.

Durham 's England international stars and Ashes heroes include North East born Steve Harmison, Paul Collingwood and new England cap Liam Plunkett.

Middlesex has played at Lord's, the historic home of cricket, since 1877. Middlesex has been one of the most successful county sides of recent years.

Golf

Northern Rock's commitment to North East golf is reinforced by Northern Rock's backing of the country's largest PGA regional event at Matfen Hall.

The £30,000 Northern Rock Masters takes place each August at the Northumberland course and is preceded by a junior open day allowing hundreds of youngsters to try golf, receive coaching from PGA professionals and participate in a Pro Am tournament.

For the first time in 2006 Northern Rock sponsored the All*Star Cup at Celtic Manor in South Wales. Over six million viewers watched celebrities from Europe and the USA compete in an event that was broadcast on ITV1 over the August Bank Holiday.

Northern Rock Foundation Golf Day

Northern Rock holds an annual golf day to raise money for our Corporate Charity. Invitations are sent out to all our suppliers, who pay to enter a team of 5 people into the event. All money raised is then double matched by The Northern Rock Foundation.

Tennis

The Northumberland and Durham Tennis League is sponsored by the Company and is 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.