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The full extent of Britain's sub-prime mortgage crisis was shown today as Northern Rock announced losses of almost £725 million.
Tens of thousands of customers are struggling to repay mortgages, plunging the nationalised bank into debt.
Four in 10 of its borrowers now have mortgages worth more than their homes as house values continue to plummet.
The number of customers more than three months behind in their payments has gone up from 7,796 to 22,141, or nearly four per cent of its borrowers.
The bank lost £724.2 million in the first six months of the year, raising fears that taxpayers' money will never be repaid.
Northern Rock's chief executive Gary Hoffman said: “The outlook for the UK mortgage and housing market remains uncertain.”
Northern Rock — taken into public ownership in February last year after collapsing in the financial crisis — was notorious for its disastrous Together loans which lent up to 125 per cent of home values.
The figures revealed for the first time the full extent of Britain's “sub-prime” crisis. Thousands of customers have been left struggling to meet loan repayments as unemployment soars and the value of their homes plummets.
The £724.2 million losses for the first six months of the year, followed losses of £1.36 billion in 2008.
The bank was forced to write off another £602.2 million of bad debts as loans to customers turned sour having taken an £894.4 million hit last year.The disastrous results cast fresh doubt over when, and if, taxpayers will get their money back having saved Northern Rock from collapse.
The Rock was at the centre of the first bank run in 140 years in September 2007 as the credit crunch exposed its over-reliance on money markets.
The crisis forced it to turn to the Bank of England for £26.9 billion in emergency funding before being nationalised when sale attempts fell through.
It today said it still owed the Government £10.9 billion — more than the £8.9 billion it owed at New Year.
The debt has increased since Northern Rock was told to change tack by ministers and start lending again having withdrawn from the market to repay the loan. This year it promised to lend £14 billion over the next two years in mortgages — £5 billion this year and £9 billion in 2010 — to stimulate demand in the housing market.
But Mr Hoffman today admitted Northern Rock will lend “nearer £4 billion” this year because European red tape has delayed restructuring.
He also said the bank will not return to the reckless lending of his disgraced predecessor Adam Applegarth, who pushed the 125 per cent mortgages. “All lending will be made responsibly and will be carefully underwritten on commercial terms,” said Mr Hoffman.
Northern Rock caused outrage when it paid bonuses to staff last year despite racking up heavy losses.
Reader views (19)
Does a bank collapse happen when the bank has so large a deficit that it can¡¯t pay all the depositor? Or there are other reasons for a collapsed bank.
While under an age of bank crashed keep happening, keeping money seems risk a lot, I prefer to spend them, anyway, I don¡¯t have much.
- Eronne, NY, 15/08/2009 04:57
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I lost £38,000 when transferring out of Equitable Life that the FSA were supposed to be regulating. No compensation. Brown set up he FSA. Britain wake up and dump him; whatever he touches turns brown.
- Ian, Yamba, Australia, 05/08/2009 04:33
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Bernard Park, Guildford got it in one
- Roy Lewis, United Kingdom, 04/08/2009 15:09
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The FSA (Financial Services Authority) failed to protect depositors, investors and the taxpayer. So Mr. Brown believes the FSA should carry on, when it clearly does not understand what is going on? The voters will demand change.
- Andrew, London, 04/08/2009 14:29
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Before we all get over excited is this loss cash or just an accounting figure! Remember you can record losses over and over again but you can only run out of cash once. Have they run out of cash, I doubt it!!!!
- Pedro, Dubai UAE, 04/08/2009 14:17
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Quote: Richard Kennard, Welling. If capitalism has any virtue it's survival of the fittest; it would have been a case of short-term pain but long-term gain.
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Ain’t that the truth, Richard.
But Capitalism has a way of turning itself into Socialism, when the Capitalists fall on hard ground.
Lame ducks and all that; only applies to the masses on the dole.
- Mickinlondon, london., 04/08/2009 14:16
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Northern Rock is losing FOUR MILLION POUNDS EVERY DAY.
That is chicken-feed when compared with what it currently costs to run the House of Conmen and the House of Frauds.
- Reuben Camara, Republic of Morecambe, UK, 04/08/2009 13:50
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Eventually the penny will drop, but here's a hint - we live in dumpUK. Feel better, everybody?
- Ted, London, 04/08/2009 13:38
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Didn't Northern Rock Staff had a massive bonus early this year for "performance" ??? As quoted by "Unite trade union argued the bonus, which follows an agreement with the Treasury, was a fitting reward for "hard work and dedication"? For squandering tax payer's money, more like.
- Cc, london, 04/08/2009 13:29
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Uh oh, it sounds prime-time for Gordon to sell for 10p on the £1... Remember his brilliant, well-thought out timing regarding the Gold stockpiles...
Trust him, he knows something the rest of us plebs don't know...
- Andre, london, 04/08/2009 13:15
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This bank like the other delinquent ones should have been allowed to go bust. If capitalism has any virtue it's survival of the fittest; it would have been a case of short-term pain but long-term gain. Why wasn't our taxpayers' money given, instead, to prudently run banks like the Co-operative bank. NR, RBS et al are now zombie banks in the worst Japanese tradition. They will continue to devour public money long in to the future.
- Richard Kennard, Welling, 04/08/2009 11:59
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Just give England its independence. Scotland can have the bank debt. We can then get rid of Gordon, Tony, Darling, Sir Fred and Michael Martin. What a winner that would be!
- Da, London, 04/08/2009 11:23
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How could so many "experts" have got their sums so wrong?
- David, Fleet UK, 04/08/2009 11:13
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Personally, I find it really odd that the most spectacular failures in the banking sector only affected banks and building societies with head quarters outside the City of London. HBOS (Halifax Bank of Scotland) , RBS (Royal Bank of Scotland), Northern Rock (Newcastle) and Bradford and Bingley Building Society. For all the whoo-harr, would the public been saddled with such debt if these banks were headquartered in a Conservative, Liberal i,e southern consituency ? It's well documented that Gordon Brown and Alistair Darling (both Scottish) regularly had dinner with the likes of Sir Fred Goodwin. Makes you think......Let's create a sense of financial stability in the country by creating ridiculously cheap debt that anyone can aquire, the market will have to follow and everyone will feel richer and love the government. Oops!
- Hansel, London, 04/08/2009 10:37
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The Taxpayer is paying for the management's policy of giving money to people who could not repay the loan.
The consequent default loans were predictable, so the borrowers aren't the ones who are really at fault.
- Cap, london, 04/08/2009 10:08
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Hello London,
Can anyone please tell me how mortgages can be paid when many have LOST there jobs?. You can-not get blood out of a stone, people just don't go around packing there job in.
The big profits made by Barclays and HSBC banks were made in investments and not in the case of Barclays on the high-street, there retail suffered a 61% loss.
Recession means what it says on the tin, the Government can't be that blind can they?.
Negative Equity is worse for the home buyer not the bank, the bank still if the person is in work gets its money, its when people loose there jobs they don't .. then they default on payments.
Many have to live and pay for there homes because there stuck?. People need a roof over there heads with no affordable housing in supply, Its jobs we want, people work get money and spend, turn off the tap and everything dry's up .... FACT?.
Finally,
Benefits are not as good as a wage, and if you have mortgage insurance cover it will only last for one year, recessions last many years and good paid jobs are hard to come by.
The sums don't add up and never will do so deeper in the mire we go, again .. FACT.
I like many have a family, a mortgage, and worried about my job is it safe. I can't put it all on expenses ,..... what a world we live in?.
- John L., Scarborough N.YKS. England. U.K., 04/08/2009 10:01
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The Government should never got involved in the first place.
Perhaps this was purely a political move as it is based in the LABOUR HEART LAND.
- Bernard Parke, GUILDFORD, 04/08/2009 09:44
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Another Labour failure.
- Sally Jones, London, 04/08/2009 09:42
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Go on Gordon, chuck some more money at it, the staff need their bonuses.
- Bob, Cheam, 04/08/2009 09:19
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