Taxpayers' cash at risk as Northern Rock warns arrears have doubled in just three months

The stricken bank's pledge to repay the Bank of England's rescue money by 2010 depends on it persuading homeowners to move to other lenders.

This will be in jeopardy if higher-risk borrowers cannot find a deal elsewhere.

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The number of Northern Rock borrowers falling behind with their mortgages has almost doubled in recent months.

If they cannot find the money to repay their loan, they face having their homes repossessed.

The prospect of a Governmentowned bank throwing people out of their homes would be a political nightmare for Gordon Brown.

Yesterday the bank's new boss admitted that its strategy of advising the majority of its 700,000 remaining borrowers to leave depends on other lenders wanting their business.

Executive chairman Ron Sandler admitted the outlook for the mortgage market is 'highly uncertain'. He said: "Equally we know that that is dependent on what happens in the wider market place and the availability of alternative mortgage lending.

"That is an evolving story and we will wait to see how that happens and report on it when we see how things develop."

Under its repayment plan, Northern Rock must have paid back 25 per cent of the Bank of England's loan by the end of this year, 75 per cent by the end of 2009 and the rest by 2010.

When preparing the plan, Mr Sandler said, the bank's new management team had painted the gloomiest possible picture.

He said: "We did look at recession scenarios. . .including a recession scenario of the same magnitude as that which occurred in the early-90s."

The bank's staff are now telling most people to go elsewhere when deals such as two-year fixed rates come up for renewal.

The idea is that Northern Rock gets back the money from their loan and can use it to make the repayments needed to stick to the agreed timetable.

But its trading statement, published yesterday, warned: "This environment presents Northern Rock with challenges, especially as regards the company's abilityto meet its targeted mortgage redemption levels in the future."

The current mortgage market – with rates soaring, deals disappearing and demands for huge deposits – means only the best borrowers can get a deal.

The fear is that thousands of Northern Rock customers will not be able to get a new loan from another lender.

The biggest worry is over people who took out the controversial "Together" mortgage, which lent up to 125 per cent of a property's value.

More than £430million was handed out in mortgages for 100 per cent or more of the property last year, according to the bank's annual report.

Over the last few months, every single bank and building society, including Northern Rock, has axed these types of super-sizeloans.

As a result, customers will be turned away from every lender, with most now demanding a deposit of at least 25 per cent for their cheapest deals.

Melanie Bien, director of the mortgage broker Savills Private Finance, said: "They could effectively be stuck on Northern Rock's standard variable rate as there is nothing better on offer."

This means that Northern Rock will be left with the higherrisk borrowers who cannot escape.

Mr Sandler admits that the redemption programme means there will be "a degree of adverse selection".

He said: "In other words, those customers who are most able to mortgage elsewhere will be able to mortgage elsewhere and those who represent the greater risk will in general have more difficulty in finding alternative sources of mortgage."

Yesterday's statement showed that nearly £3billion has already been repaid, cutting the total outstanding to £24.1billion.

• High Street banks are boosting their profits by pushing up the cost of overdrafts while cutting the interest paid on current accounts. The Bank of England cut the base rate last month by a quarter point to 5 per cent but banks have not passed that reduction on to overdrawn customers. Personal finance experts Moneyfacts found that many firms have instead put up the interest rates charged on overdrafts, by as much as 3 per cent. Some have cut the interest paid on accounts in credit well beyond the drop in the base rate, by as much as 1.75 points. Critics say the moves are a response to an Office of Fair Trading crackdown on unfair overdraft penalties, which is likely to put a cap on the charges for bouncing a payment. These are currently as high as £39. The banks employed a similar tactic when the OFT ordered them to put a cap of £12 on credit card penalty fees in April 2006.