Nationalised lender Northern Rock has announced a 24 per cent jump in half-year losses and warned rising unemployment could pile further pressure on its mortgage book.
The Newcastle-based company posted a pre-tax loss of £724.2 million for the six months to June 30, compared with £585.4 million for the same period last year as the amount of loans turned sour tripled.
Northern Rock – which was taken into public ownership in February 2008 -–said impairment charges on bad loans rose to £602.2 million, from £191.6 million last year and expected that figure to be similar in the second half.
The lender also said the share of its mortgages more than three months in arrears had risen to 3.92 per cent by June 30, from 3.67 per cent in March.
Northern Rock now owes the Government £10.9 billion and expects to receive state aid permission from Europe in the autumn as it works towards splitting the businesses in two to prepare for a return to the private sector.
Chief executive Gary Hoffman warned the outlook for the mortgage market “remains uncertain”.
He said: “The current environment continues to present Northern Rock with challenges particularly in managing the quality of its loan portfolios.”
Northern Rock was notorious for its Together loans, in which it lent up to 125 per cent of home values and as the recession bites and house prices fall, it is these loans that are responsible for its soaring rates of mortgage arrears.
Mr Hoffman said the lender might continue to see a small increase in the three-month arrears rate, but added the share increases were slowing.
The lender said the number of properties repossessed as of June 30 was 2,522, compared with 3,620 at the end of 2008 as a result of attempts to lean less heavily on customers hit by the recession.
Mr Hoffman said the historically low rates of interest had also reduced the number of people falling into arrears as those coming off fixed rate deals were given a soft landing.
“Lower interest rates have resulted in improved affordability for mortgage customers, but confidence remains finely balanced, reflecting expectations for increased unemployment in the coming months,” he said.
The Rock was at the centre of the first bank run in 140 years in September 2007 as the credit crunch exposed its over-reliance on money markets.
The crisis forced it to turn to the Bank of England for £26.9 billion in emergency funding before being nationalised when sale attempts fell through.
Meanwhile, Northern Rock said new lending in the year as a whole would now be around £1 billion short of the previously envisaged £5 billion, as it reins in its balance sheet ahead of its planned restructuring.
Gross residential mortgage lending in the first half of the year amounted to £1.3 billion, with the amount of new loans doubling in the second quarter as the firm looked to step up its mortgage lending. It also has £1.2 billion in the pipeline.
Mr Hoffman said the bank still intends to lend around £9 billion in 2010.
Meanwhile, retail deposits at Northern Rock were down to £18.4 billion from £19.6 billion at the end of December.
Labour MP Jim Cousins, a member of the Commons Treasury Select Committee, said: “Northern Rock’s workers deserve a huge pat on the back because £18 billion out of £27 billion has been repaid.
“But of course what people must bear in mind is that the £18 billion of repayments have meant the best mortgages in Northern Rock have now been disposed of.”