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Northern Rock makes a £500m loss Northern Rock makes a £500m loss
(30 minutes later)
Northern Rock is set to announce that it has made losses of £500m, the BBC has learned. Northern Rock is set to announce that it has made bigger-than-expected losses of £500m, the BBC has learned.
But it has been paying back its loan from the Bank of England faster than it had expected. But it has been paying back its loan from the Bank of England faster than it had predicted.
Much of the loss will come from the charges it takes to cover losses as stretched homeowners struggle to pay back their mortgages. It was nationalised in February after the government intervened following the first run on a British bank in more than a century.
There will also be costs relating to the shrinking and reorganisation of the business, including job losses. Much of the loss will come from the charges it takes to cover losses from struggling mortgage borrowers.
Most attention will be on the charges it takes to cover losses it expects to suffer on mortgages made to financially stretched homeowners Robert Peston, BBC business editor Read Robert Peston's blogMost attention will be on the charges it takes to cover losses it expects to suffer on mortgages made to financially stretched homeowners Robert Peston, BBC business editor Read Robert Peston's blog
Northern Rock was nationalised in February following the first run on a British bank in more than a century. Northern Rock faces particular difficulties because it offered loans of up to 125% of the value of a property.
Borrowers coming to the end of a fixed-rate deal on such a loan and trying to remortgage will now find it hard to borrow as much as 95% of the value of their property, and the value of the property may also have fallen.
At the worse end
There will also be costs relating to the shrinking and reorganisation of the business, including job losses.
The BBC's business editor Robert Peston says he expects Northern Rock to report on Tuesday that the losses are at the worse end of what it expected when it drew up its business plan.The BBC's business editor Robert Peston says he expects Northern Rock to report on Tuesday that the losses are at the worse end of what it expected when it drew up its business plan.
But he stressed that even greater losses would not be a problem for the bank's customers because it is now state-owned and cannot fail.But he stressed that even greater losses would not be a problem for the bank's customers because it is now state-owned and cannot fail.
The faster-than-expected progress with paying off the £29.6bn it owed the Bank of England at the end of last year is a result of the way it has been encouraging borrowers to pay off their mortgages early or move their business to other banks.The faster-than-expected progress with paying off the £29.6bn it owed the Bank of England at the end of last year is a result of the way it has been encouraging borrowers to pay off their mortgages early or move their business to other banks.
The bank has made a deal with Lloyds TSB, for example, that involves borrowers coming to the end of their fixed-rate deals being encouraged to switch to Lloyds.The bank has made a deal with Lloyds TSB, for example, that involves borrowers coming to the end of their fixed-rate deals being encouraged to switch to Lloyds.
Northern Rock was nationalised after the government decided that none of the potential bidders for the business would provide good value to tax-payers.