Northern Rock: more than 4% of mortgage customers are in arrears

Published 10th Mar 2010

Despite the losses – down to £257m from £1.3bn a year ago – Northern Rock is paying out £15bn in bonuses to its staff but chief executive will waive his



More than 22,500 Northern Rock customers – over 4% - have missed monthy mortgage payments, the nationalised mortgage lender admitted today as it reported a sharp fall in losses for last year.

Despite the losses – down to £257m from £1.3bn a year ago – the bank is paying out £15bn in bonuses to its staff and will be paying £1.5m to the Treasury to cover the cost of the one-off tax on the payments.

Chief executive Gary Hoffman is waiving his bonus although the bank said a new long-term incentive scheme was being drawn up for the former Barclays executive.

The new scheme for Hoffman will pay out only when the nationalised bank returns to profit or if it can be returned to private hands.

The bank, which was split into a "good" and "bad" operation at the start of the year, actually managed to make a £466m profit in the second half of the year although this was not enough to offset losses in the first half, and charges for impaired loans of £1bn.

The operation reporting today is Northern Rock (Asset Management) plc – technically the "bad" bank. Before it was nationalised, the company specialized in so-called Together loans – allowing customers to borrow more than the value of their home – and this left it a legacy of large customers in arrears.

The company's mortgage arrears rate rose in the first half of 2009 before stabilising in the final quarter of the year by which time residential mortgage accounts over three months in arrears reached 4.28%, compared with 2.92% at 31 December 2008. If Together loans are stripped out, the numbers in arrears fall to 3.10% although this is still higher than the 2.25% at 31 December 2008, which shows that more than 6% of customers with Together mortgages are in arrears.

Hoffman warned of the difficulties ahead. "The outlook for the UK economy remains uncertain. After a contraction in the economy during 2009, with increases in unemployment and house price deflation, conditions appear to have stabilised, but economic recovery is still expected to be relatively weak," Hoffman said.

He said the current low level of interest rates means that loan repayments "remain affordable for those in employment", but said that the company's future performance will be influenced by the timing and extent of increases in rates.

He also admitted that loan loss impairment charges are expected to remain high during 2010, but below the level recorded in 2009.

"It is over two years since Northern Rock entered public ownership. During that time the company has made good progress in pursuit of its objectives that include repayment of state aid, delivering value for taxpayers and ultimately a return to private ownership. We are looking forward, not back, and my colleagues across the business remain committed to delivering a high standard of service for all of our customers. We are on the right trajectory and I am confident that, with the current strong management team in place, we are well positioned to deliver against our objectives in 2010," he added.

The bank, which has permission from the EU to start mortgage lending after reducing its loans in the early months following its nationalization in February 2008, said residential lending stood at £4.2bn in 2009, compared with £2.9bn in 2008. But as a result of the strategy to lend again, the taxpayer has injected more funds into the lender which now owes the taxpayer £22.8bn, up by more than £8bn.

Northern Rock Asset Management has £49.7bn of residential mortgages, as well as £3.9bn of personal unsecured loans.

Following approval for state aid granted by the European commission, the company ceased to offer new lending at the end of 2009. As a result of the restructuring the company also transferred its entire book of retail savings, of £19.5bn, to the new "good" bank, Northern Rock plc, and no longer offers any retail savings products.

Source: ' Guardian '

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