Northern Rock reveals heavy losses as arrears rise

Northern Rock has made a loss of £724.2m in the first half of the year due to a rise in arrears and writedowns.

This compared to a £585.4m loss over the same period in 2008.

Impairment charges on bad loans rose to £602.2m in the first half of the year from £191.6m at the end of 2008 and Northern Rock expects a similar figure for the second half of the year.

Its half year results also reveal its mortgages in arrears, including its 125% loan to value Together mortgages, rose to 3.92% by 30 June compared with the Council of Mortgage Lenders members' average of 2.4%.

Arrears have now risen from 3.67% at 31 March 2009 and 2.92% at 31 December 2008. However, excluding its Together loans, residential mortgage accounts over three months in arrears are 2.85% at 30 June 2009.

Repossessions fell from a peak to 2,522 compared with 3,620 at 31 December 2008, which the bank attributed to the actions taken to assist customers in difficulty to stay in their homes.

In the first half of 2009, gross mortgage lending stood at £1.3bn. The government has set the bank a target of new mortgage lending of £5bn for 2009 but the bank has said new lending is likely to be nearer to £4bn due to its constrained capital position.

Northern Rock is also progressing with a plan to split itself into two companies which is expected to be completed in the autumn. One part will hold savers' money and be responsible for new lending, while the other will hold many of the existing loans and be responsible for paying back loans to the government.

Once the restructuring has been completed, the Treasury will provide additional funding if the European Commission agrees to allow the plan. After the capital injection has been completed, Northern Rock will start to increase its new lending and return to the private sector. It currently owes the government £10.9bn.

Gary Hoffman, chief executive of Northern Rock, says: "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.

"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."