Northern Rock has just lost the taxpayer another £724m. The state-owned lender’s loss on bad debts hit £602m in the first half, over three times last year’s figure. It revealed that almost 4% of its mortgage book is now in arrears – a 1% jump from the end of last year – compared to an industry average of 2.4%.
What the commentators said
The results are a stark reflection of the “lunatic lending” that got the Rock into trouble, said Chris Blackhurst in the Evening Standard. It used to advance mortgages worth 125% of the value of the property (‘together’ loans) and allow borrowers to self-certify their income. Talk about a “major sub-prime lender”.
No wonder arrears on the together loans are now 6.5%, triple last year’s level, and 39% of mortgage holders are in negative equity. Rock seems to have been pretty careless with unsecured lending too, said Lucy Farndon; this accounted for more than half the bad debt charge. Meanwhile, it has lost £1.2bn of retail deposits, which is largely why the government loan has risen to £10bn.
The government plans to split the bank into a “good” and a “bad” bank, with the latter containing the toxic assets and the former the savings business and branch network along with solid loans. The good bank was to have been sold off by the end of the year, before the general election.
But the plan has been delayed due to the need to wait for EU approval. And given the state the Rock is currently in, said Robert Peston on bbc.co.uk, rushing through a sale would deprive taxpayers of a chance to recoup as much of their loss as possible.