Losses at Northern Rock

Northern Rock has revealed that it made a £1.4 billion loss last year after large write-offs on mortgage loans.

The bank repossessed around 4,000 of its borrowers homes last year, contributing to overall repossession rate by 10%.

Northern Rock also said that it was ahead on its repayments of its £26.9 billion government loan after the amount owed was cut to £8.9 billion.

On top of this it has verified its plans to increase its mortgage lending over the next couple of years by £14 billion.

It’s chief executive, Gary Hoffman said: “Northern Rock has made good progress against the business plan objectives laid out in March 2008.”

‘Together’ Mortgage Causes Most Problems

Its number of repossessed homes also rose by 63% compared to a year earlier.

The loss was mostly contributed to by write-offs on the banks mortgage loans, especially its ‘Together’ mortgage which guaranteed borrowers up to 125% of the value of their homes.

In the past year, the bank’s arrears have increased to six times the amount they were. This has resulted in 2.92% of mortgage borrowers owing more than three months worth of arrears.

The bank has now stopped offering its ‘Together’ mortgage, but 4.53% of those who currently have this type of mortgage are more than three months behind on their arrears

The current industry arrears stand at much lower than either of these figures, at 1.88%, therefore the bank has had to write off £894 million from its mortgage book value.

Other losses the bank has made include expenses like redundancy pay and losses on its investments.

Returning to What They ‘Do Well’

After the banks business began to shrink in the last year, the number of mortgage borrowers also dropped from over 750,000 to less than 600,000. Though this also means that those with infamous ‘Together’ mortgages now make up 29% of the mortgages they lend.

Customers on such mortgage schemes have found it more difficult to change lender and therefore the average loan-to-value of its remaining borrowers has increased to 73%, exposing the bank to further potential losses if the recession causes borrowers to lose their jobs and fall further behind on their repayments.

Their plan to increase mortgage lending marks progress in the bank’s lending policy.

After Northern Rock was nationalised just over a year ago, the bank has tried to reduce its mortgage book in order to try and repay its government loan. Now, the bank is going to try to increase its flow of funds to potential house buyers by increasing its lending once again.

Their executive said: “we can now return to what we do well – mortgage lending.”

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