Northern Rock mortgage arrears soar 394%

Published 03rd Mar 2009

Northern Rock, the nationalised bank, today revealed an 394 per cent increase in the number of its customers falling behind on their mortgage repayments by more than three months.

The bank said that 17,264 mortgage accounts were now in arrears up from 3,492 at the end of 2007. This was equivalent to 2.92 per cent of its total mortgage book, which is well above the industry average of 1.88 per cent.

Northern Rock's worse-than-average position is largely due to arrears in its Together mortgage portfolio, which was on sale before the bank's collapse. The Together product allowed customers to take a mortgage out and get a personal loan on top and arrears for this product now stand at 4.5 per cent — nearly three times the national average.

The Council of Mortgage Lenders (CML) has estimated that 75,000 homes will be repossessed this year as unemployment rises, up from 25,900 in 2007.

Northern Rock said today that it was developing mortgage rescue solutions to limit repossessions and has pledged not to take possession of a property until at least six months after a customer has fallen into arrears.

The bank published its annual report and accounts today and confirmed that it had repaid £18 billion of the £26.9 billion loan it was given by the Government when it collapsed in September 2007.

Northern Rock said two weeks ago that this had been achieved by issuing fewer mortgages so that money from redemptions could be used to repay the loan.

The policy has now been reversed and Northern Rock will invest £5 billion in new mortgages this year and a further £9 billion next year as part of the Government's policy of restarting bank lending.

Northern Rock also confirmed that it had lost £1.3 billion last year, up from £585 million the year before.

Of the total loss, £894 million was due to borrowers defaulting on their mortgages, personal loans and credit cards. A further £164 million came from exceptional costs including fees to lawyers and City advisers and redundancy costs.

Despite the heavy loss, Northern Rock will pay 100 of its senior managers bonuses for their work in 2008 — a decision that has been criticised by politicians.

Gary Hoffman, the chief executive, said: "The Government loan has been reduced significantly, and the deposit base of the company has grown as customers have returned to Northern Rock. We can now return to what we do well — mortgage lending."

Northern Rock nearly doubled its deposit balances to £19.6 billion last year despite competition regulations limiting the competiveness of its products. The bank cannot offer savings rates that are too competitive but still took in large quantities of new business as customers sought a safe place to store their money with other banks faltering.

Source: ' times '

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