Nationalised Northern Rock is STILL borrowing £11million a day

Published 05th Aug 2009

Northern Rock is borrowing an extra £11million a day from taxpayers while stinging its customers with punitive interest rates.

The state-owned firm's loans from the Bank of England soared by £2billion in the first six months of the year as it struggled to finance its operations.

At the same time, the Rock almost tripled the margins it charges on mortgages, company figures showed.
Northern Rock

Beginning of the end: Northern Rock has borrowed an extra £2bn from taxpayers so far this year while stinging its customers with punitive interest rates

And it failed to meet pledges to improve the supply of mortgages, as overall lending fell by over £4billion.

The dismal figures were revealed in Northern Rock's financial statement for the first six months of 2009.

They suggest the Newcastle company remains a huge burden on both the taxpayer and the broader economy, racking up losses of £724million.

Its outstanding net debt to the Bank of England reached £10.9billion in the first half of the year, up from £8.9billion at the end of 2008.

This is because Northern Rock is struggling to refinance its debts.

The loan will rise by another £3billion as the Government prepares to pump extra cash into the firm later this year.

A spokesman said the debts could 'potentially' go even higher.

Earlier this year Chancellor Alistair Darling ordered the Rock to reverse its policy of reducing mortgage lending because homebuyers were starved of funds.

Yet yesterday's figures suggest the firm is still offering punishing deals and is a drag on the housing market, rather than a boost.

Michelle Slade at financial firm Moneyfacts said of 12 lenders, Northern Rock is charging the highest rates on popular types of two-year fixed-rate mortgages.

'Borrowers will be disappointed that with so much of their money invested in the lender it appears to be reneging on the claims it made,' she said.

'Despite Northern Rock's claims that it is willing to lend, this isn't reflected in the mortgage rates that it is offering.'

To add to its woes, thousands of customers are falling behind on their mortgages.

Some 39 per cent of its 560,000 customers are in negative equity, the figures showed - an extraordinary 218,000 people.

And a growing number are falling behind on their mortgage repayments - in part because Northern Rock offered such extraordinary deals before it collapsed in September 2007.

The most notorious of these was the 'Together' loan, which was up to 125 per cent of a home's value.

Arrears on these loans spiked to 6.5 per cent of Northern Rock's loan book, up from 2.14 per cent in the first half of 2008. The industry average stands at just 2.39 per cent.

Peter Vicary-Smith, chief executive of consumer watchdog Which, said: 'People at Northern Rock who took out 125 per cent mortgages are often stuck in negative equity, so they can't then move to a new lender. They have no choice but to carry on paying heinous interest rates.'
Enlarge Pension funds hit by record losses graphic


Overall, Northern Rock's losses in the first half of the year hit £ 724million, compared with £585million in the same period last year.

Chief executive Gary Hoffman said: '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.'

Mr Hoffman said the firm plans to offer new loans of £4billion this year - less than its previous target of £5billion. But when repayments of existing mortgages are factored in, Northern Rock's lending actually fell £4.2billion in the first half of the year.

At the same time the margins that Northern Rock charges on its lending almost tripled to 1.12 per cent from 0.4 per cent.

Gordon Brown was yesterday accused of planning to rush through a sell-off of Northern Rock within months.

MPs claimed the Prime Minister wants to offload part of the state-owned lender before the next election to burnish his credentials as the man who ‘saved the banks’.

But a quick sale in the middle of a crippling recession could prove to be a dismal piece of timing – attracting rock-bottom prices.

Opponents said it would mirror Mr Brown’s notorious decision to sell part of Britain’s gold reserves between 1999 and 2002 when prices were at 20-year lows.

The Government is planning to separate the Rock’s ‘good’ assets from its ‘bad’ assets later this year. It will offer the attractive section of the business – including deposits, branches and some of its best-performing mortgage loans – to the private sector.

The rest of the firm will be retained in the public sector, in a plan similar to that pursued for Bradford & Bingley last year.

The plan is currently awaiting European Union approval. Liberal Democrat Treasury spokesman Vince Cable said: ‘If they are determined to hold on to Northern Rock, why is the Government pressing ahead with this plan to split apart the good assets and the bad assets? The Government has a duty to ensure we get maximum value in any sale, and that will not be realised if they try to sell in a hurry in a distressed market.

‘Gordon Brown has a bad record for asset sales, going back to the gold sales. A lot of things have been sold at the wrong time.’

Conservative Treasury spokesman Philip Hammond said: ‘The Government must not succumb to the temptation of a politically motivated quick sale at a knockdown price with the tax payer picking up the bill.’

The Government nationalised Northern Rock early last year after efforts to sell the firm to private sector bidders including Sir Richard Branson failed. Tesco has been named as a potential buyer of the Rock this time around.

Yesterday chief executive Gary Hoffman said he is also considering turning the ‘good’ part of the firm into a customer-owned mutual.

However, a Treasury official said this was unlikely to happen, because the Government wants to maximise its return. He also played down suggestions that the Government is determined to sell before the next election.

A Treasury spokesman said: ‘We will only sell Northern Rock when it is the right time for taxpayers, the right time for the economy and financial stability, and when it can be done in a way that makes the banking sector more competitive.’

Source: ' Daily Mail '

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