The government is to inject another £3bn into Northern Rock, Chancellor Darling said yesterday.
As the nationalised bank announced a loss of £585.4m in the six months to June 30, Darling told the BBC’s Today programme that Northern Rock, like other banks, found itself in a ‘very difficult situation’.
Much of the bank’s loss came from having to write off bad debts from struggling mortgage borrowers.
There were also costs relating to the shrinking and reorganisation of the business, including redundancy pay for 1,300 job cuts.
Repossessed homes at the Northern Rock have risen from 2,215 to 3,710 in the last six months, or almost 70%, since the government took the bank over, making Brown and Darling responsible for repossessing hard-pressed home owners.
Darling added yesterday: ‘Northern Rock needs more share capital.
‘It doesn’t have shareholders now that it’s owned by the government, so it’s got to come to us, so what we’ve said is that we will put in up to £3bn.
‘We’ve got to get state aid approval for that so we can’t give a precise figure, but up to £3bn may be necessary.’
Northern Rock also reported a doubling of the number of mortgage borrowers falling into arrears on their mortgages, to 1.18%.
It has been predicted that by next year 140,000 Northern Rock mortgage holders will be in negative equity, and liable for repossession.
Northern Rock reported that it has repaid £9.4 billion of its loan leaving £17.5 billion still owed, compared with £26.9 billion at the end of December 2007.
It plans to pay off the debt in full by 2010 but there is to be a pause in the repayment.
Meanwhile, Alan Greenspan, the former head of the Federal Reserve Bank, has said of Northern Rock and US bank Bear Stearns takeovers: ‘There may be numbers of banks and other financial institutions that, at the edge of defaulting, will end up being bailed out by governments.’
l Housing charity Shelter has warned that home repossessions were 5,000 more last year than showed in official figures.
Shelter deputy director of policy and research Caroline Davey said: ‘Our estimates show that the number of homeowners actually losing their homes could be up to one fifth higher than the official figures suggest.
‘And at Shelter we are seeing increasing numbers of vulnerable homeowners being repossessed on the basis of loans of as little as a few thousand pounds.’
Shelter’s ROOF magazine reports that the number of repossessions at county courts in England is far greater than official figures published by the Council of Mortgage Lenders (CML).
The magazine said: ‘The CML says that there were 27,100 repossessions last year.
‘Our data shows that the true figure was likely to have been at least 5,000 higher than this – that the accurate number of repossessions was more than 32,000.’
It added: ‘The CML is predicting that the number will rise to 45,000 this year. But, the true amount is likely to be more than 54,000, close to the 1993 figure of 59,000.
‘Our data comes from records in the county courts, which include proceedings resulting from second and third mortgages and secured loans.
‘CML figures are based on information supplied by mortgage lenders on the number of defaults. But they only count first mortgages.
‘But the number of cases of repossession involving second and third charges – borrowings secured against a property on top of the original mortgage – is rapidly growing, which is further evidence that the market could be heading for a meltdown.
‘In some cases, possession is being sought – and families evicted – as a result of arrears on relatively small sums borrowed from debt consolidation agencies, or when arrears have been passed on to a company specialising in debt collection.’
