Northern Rock losses expected to be £500m

Published on Tuesday 5 August 2008 01:21

NORTHERN Rock is set to announce that it has made bigger than expected losses of £500 million, it was reported last night.

The news has emerged just days after the bank announced expected staff cuts of 1,300 as part of restructuring plans.

It was nationalised in February after the government intervened following the first run on a British bank for 140 years.

Northern Rock, Britain's fifth-biggest mortgage lender, was forced to seek emergency loans from the Bank of England in September after a funding crisis.

It is thought much of the losses will come from the charges taken to cover losses from struggling mortgage borrowers.

However, it has also been paying back its loan from the Bank of England faster than was predicted.

Northern Rock faces particular difficulties because it had offered loans of up to 125 per cent 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 per cent of the value of their property – the value of which may also have fallen.

Northern Rock's accelerated progress in paying off the 29.6 billion it owed the Bank of England at the end of last year is a result of encouraging borrowers to settle their mortgages early or move their business to other banks.

Ron Sandler, Northern Rock's executive chairman, refused to make any comment before the official announcement to the stock market today.