Rock customers face negative equity

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About 5% of the nationalised lender's customers already have a bigger mortgage debt than the value of their home, according to The Daily Telegraph.

And with house prices estimated to fall by up to 20% by the end of 2009, another 15% of mortgage holders are expected to be in the same situation by then, the paper said. This equates to around 140,000 homes.

Northern Rock is expected to unveil the deteriorating mortgage book position later this week as it unveils a loss for the six months to June.

But bosses are also expected to reveal that its loan from the Bank of England, which stood at more than £24 billion in March, will have been reduced to just over £19 billion, the Telegraph said.

Customers falling into negative equity are likely to face difficulties remortgaging with another bank.

Northern Rock said last week it is to make around 1,300 redundancies as part of its efforts to shrink the business. The job cuts relate to previously-announced plans by the Newcastle-based business to cut 2,000 staff by 2011.

Northern Rock's executive chairman Ron Sandler has promised to repay the Bank of England loans by the end of 2010.

The recovery strategy includes the bank halving its balance sheet to £50 billion by the end of 2011 by stopping all business lending and accelerating mortgage redemptions for existing customers.

Earlier this year Mr Sandler warned of "significant losses" for the lender in 2008 as the credit market turmoil continued. He also revealed more of the bank's customers were finding it more difficult to make mortgage repayments. At the end of last year, 0.57% of the mortgage book was three months or more in arrears, but by the end of April that had risen to 0.95%.