Northern Rock mortgage arrears grow as it announces £724million loss

04 August 2009 / by Rachael Stiles

Nationalised bank Northern Rock has announced half year losses of £724.2million for the first six months of 2009, up from £585.4million in the same period last year.

Furthermore, the bank said that a growing number of Northern Rock mortgage customers are falling into arrears, with 3.92 per cent borrowers more than three months in arrears, up from 2.92 in December last year, and considerably higher than the national average of 2.39 per cent.

Northern Rock was bailed out with taxpayers' money in 2007 when the credit crisis put an end to its business model of extensive mortgage lending to customers by borrowing short-term funds from the wholesale money market.

It was nationalised in February 2008, and still owes the Government more than £10billion in emergency loans.

Northern Rock has already repaid more than £10billion of the debt by way of refusing to refinance many customers' mortgages and forcing them to go elsewhere, therefore massively reducing the size of its business. It has been held largely responsible for customers falling into negative equity after taking out its controversial Together mortgage, which offered up to 125 per cent loan to value.

The bank is currently awaiting confirmation from the European Commission on whether or not it can borrow more money to fund a split into two separate companies, one to deal with savings deposits and the other to handle the mortgage business and repaying the Government.

Commenting on the results, chief executive Gary Hoffman said that he is looking to the future when Northern Rock will be a private entity again.

"The current environment continues to be challenging, however, against this backdrop Northern Rock is making progress against its revised plan and has delivered results in line with expectations," he said.

"We anticipate receiving State aid approval in the autumn and the legal and capital restructuring of the Company to be completed by the end of the year. This ultimately prepares for a return to the private sector."

Mortgage demand has been high at Northern Rock, with applications doubling in the second quarter of 2009, when it agreed with the Government to reduce its loan repayments in return for increasing the amount it was lending, in line with calls on lenders from Gordon Brown to make credit more widely available.

The BBC's business editor, Robert Peston said that while Northern Rock's mortgage losses for this year are worse than the same time last year, the fact that they are marginally improved on the second half of 2008 suggests "there are signs that the Rock may be over the worst."

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