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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 following hefty write-offs on its mortgage loans. | |
Its stock of repossessed homes also rose to 3,620 at the end of 2008, up 63% from 2,215 a year earlier. | |
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 lend an extra £14bn 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. |
Arrears | 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 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 its mortgage borrowers - amounting to 17,264 households - more than three months in arrears. | |
But those with the Together mortgages, which the Northern Rock 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%. | 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. | 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, and losses on its own investments. | |
Worse to come? | 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. | With the bank shrinking its business rapidly in the past year, the number of mortgage borrowers dropped from 777,000 to 591,000. |
It is likely that repossessions will continue to be a feature of the market over the coming year Gary Hoffman, Northern Rock chief executive Angry Northern Rock shareholders | |
But those with Together deals now make up a much larger proportion, up from 24% to 29%. | 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. | 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. | |
This exposes 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. |
'Responsible lending' | 'Responsible lending' |
The move to increase mortgage lending - which was announced last month - marks a big U-turn in Northern Rock's lending policy. | |
Since being nationalised in February 2008, the bank had 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 only £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, to help the government increase the flow of funds to potential home buyers, the bank will now increase its lending, including to existing borrowers whom it had been encouraging to leave. | |
"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. |
Executive pay | |
Mr Hoffman was appointed as the bank's new chief executive last October on an annual salary of £700,000. | |
The bank's annual report reveals that in addition he is being paid a further 40% of his pay - £280,000 - in contributions to his private pension funds. | |
The continued clear out of former directors during 2008 proved very expensive for the bank. | |
In line with their contracts, which typically gave them a year's pay and pension payments if made redundant, four directors were paid £1,988,743 between them. | |
The highest payout was to the former chief executive Adam Applegarth who received £840,304. |