What does the Northern Rock nationalisation, or as the chancellor prefers, “temporary public ownership”, mean for the housing market? Older readers will recall that, before the entry of banks into the market in the 1980s, it was common for the public sector, mainly local authorities, to offer mortgages.

More recently, in 1994, the Bank of England paid a notional £1 to nationalise National Mortgage Bank, a mortgage lender, three years after it had organised a banking “lifeboat” to allow it to survive. By then, however, NMB was a shell, having been run down.

We have seen nothing quite like Northern Rock in Britain. Does it mean the government has even more of a vested interest in ensuring the housing market does not collapse? Will the nationalised Northern Rock, famous for aggressively expanding its mortgage book, now run it down? With Northern Rock no longer competing hard, could the age of the highly competitive mortgage, dealt a big blow by the credit crisis, now be over?

Alistair Darling has gone on record distancing the housing outlook in Britain from the pain experienced in America. The Treasury expects a period of soft activity and prices, but not a crash. The chancellor promised to look at housing in his March 12 budget even before Sunday’s momentous announcement. Whether that includes a big increase in the stamp-duty threshold, currently £125,000, remains to be seen. Money is tight.

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A big issue for the Rock is how it deals with customers facing a so-called payment shock this year. The Council of Mortgage Lenders (CML) has done some calculations on this for the industry as a whole. The shock is the jolt homeowners receive on moving from the low fixed-rate deals of two or three years ago to the pain of higher rates now. The good news, according to the CML, is that we may be moving through the worst of it.

Take the example of a two-year, 25-year £114,000 repayment mortgage coming up for renewal in the final quarter of last year. The old monthly payment was £667 while a new two-year fixed rate mortgage would have cost £781 – a rise of £114. Borrowers unlucky enough to have to go onto a standard variable rate mortgage would have faced a monthly bill for £931, up £264.

Now scroll forward to the final quarter of this year. The future is unpredictable, but on plausible assumptions the CML finds the equivalent payment shock will range from just £30 for a new two-year fix to £161 on the variable rate.

The CML is not saying there will be no effect. Worst hit will be people coming out of five-year fixed rate mortgages this spring, of whom there are 200,000-225,000. Five years ago, remember, Bank rate was 3.5%, the lowest for more than half a century.

These homeowners have, however, seen significant salary hikes over five years, an average net monthly rise in income of £390, the CML reckons. Most should cope. Whether Northern Rock’s mortgage customers will find they have to cope in the arms of another lender is just one of the questions about this unusual nationalisation.

home.economics@sunday-times.co.uk

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