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Northern Rock makes £1.4bn loss Northern Rock makes £1.4bn loss
(about 1 hour later)
Nationalised bank Northern Rock has confirmed that it made a loss of £1.4bn in 2008, but says it is making "good progress" against its objectives. Nationalised bank Northern Rock has confirmed that it made a loss of £1.4bn in 2008, but says it is still making "good progress".
It also said home repossessions jumped by 63% last year, with the bank holding 3,620 properties by the end of 2008. Its home repossessions jumped by 63% last year, with the bank holding 3,620 properties by the end of 2008.
The bank said it was ahead of target in repaying the £26.9bn government loan, having cut the amount owed to £8.9bn.The bank said it was ahead of target in repaying the £26.9bn government loan, having cut the amount owed to £8.9bn.
It also confirmed its plans to increase mortgage lending, saying it would offer £14bn of lending in the next two years.It also confirmed its plans to increase mortgage lending, saying it would offer £14bn of lending in the next two years.
"Northern Rock has made good progress against the business plan objectives laid out in March 2008," said chief executive Gary Hoffman."Northern Rock has made good progress against the business plan objectives laid out in March 2008," said chief executive Gary Hoffman.
While the 3,620 repossessed homes that Northern Rock held at the end of 2008 was up sharply from the 2,215 it held a year earlier, the total was lower than the 4,201 it held at 30 September 2008. Arrears
The huge annual loss was driven by write-offs on its mortgage loans, especially its now notorious Together mortgages, which granted borrowers loans of up to 125% of the value of their homes.
The bank's arrears have shot up six-fold in the past year, with 2.92% of all mortgage borrowers more than three months in arrears.
That amounts to 17,264 households.
But those with the Together mortgages, which the bank stopped offering at the start of last year, are in an even worse position, with 4.53% of accounts more than three months behind.
Both figures are far higher than the current industry arrears average of just 1.88%.
As a result the bank has had to write off £894m from the value of its mortgage book.
The rest of the loss was made up of exceptional expenses, such as redundancy payments, associated with the government rescue of the bank, bank, and losses on its own investments.
Worse to come?
With the bank shrinking its business rapidly in the past year, the number of mortgage borrowers dropped from 777,000 to 591,000.
But those with Together deals now make up a much larger proportion, up from 24% to 29%.
They have found it much harder to move to other lenders and many will now be in negative equity as a result of sharply falling house prices.
This has also meant that the average loan-to-value of its remaining borrowers has shot up from 60% a year ago to 73% now, exposing the bank to further potential losses if borrowers lose their jobs in the recession and even more fall behind with their repayments.
"Unfortunately, given the external economic backdrop it is likely that repossessions will continue to be a feature of the market over the coming year," said Mr Hoffman."Unfortunately, given the external economic backdrop it is likely that repossessions will continue to be a feature of the market over the coming year," said Mr Hoffman.
The bank also confirmed a rise in arrears among its mortgage borrowers.
The number of borrowers in arrears of more than three months on its "Together" loans - loans of up to 125% of the value of a property - increased to 4.5%.
This resulted in £894m being written off.
'Responsible lending''Responsible lending'
The move to increase mortgage lending - which was announced last month - marked a U-turn in Northern Rock's lending policy. A move to increase mortgage lending - which was announced last month - marked a U-turn in Northern Rock's lending policy.
Since being nationalised in February 2008, the bank has sought to reduce its mortgage book - a policy which it says has helped it make good headway in repaying the government loan.Since being nationalised in February 2008, the bank has sought to reduce its mortgage book - a policy which it says has helped it make good headway in repaying the government loan.
New mortgage lending at the bank was about £2.9bn in 2008, compared with £29.5bn in 2007. New mortgage lending at the bank was only £2.9bn in 2008, compared with £29.5bn in 2007.
However, following consultations with the government, the bank will now increase its lending. However, to help the government increase the flow of funds to potential home buyers, the bank will now increase its lending.
"We can now return to what we do well - mortgage lending," said Mr Hoffman."We can now return to what we do well - mortgage lending," said Mr Hoffman.
The bank's return to the mortgage market would be governed by focussing on "responsible lending", he added.