A massive 60% of Northern Rock mortgage customers will be left out in the cold after their mortgage periods finish under new plans to restructure the national bank.
The government has today published the bank's 2007 financial results, which reveal it made a loss of £167.6 million last year. And despite the tax-payer prop, the results admit Northern Rock is likely to be “significantly loss-making” during 2008.
The troubled bank, which boasted the title of the UK’s fifth-largest mortgage lender before its downfall, has written off £127.2 million as “non-recurring” expenses. It says the slowing mortgage market, as well as the cost of its strategic review are to blame for the losses.
The financial results are in stark contrast to Northern Rock’s 2006 performance, when it made a profit of £626.7 million, and reveal the true impact of the crisis that hit the bank during the second half of 2007.
The bank’s lending activity reduced significantly last year, with a £4 billion cut in the value of mortgages and personal loans issued. Despite reducing its presence in the mortgage market, Northern Rock has seen the number of mortgages in arrears increase in the past year, from 0.47% of its total book to 0.57%. However, it says this is still below the industry average of 1.1%.
The financial results outline plans to strengthen the business. As well as ditching its unsecured and commercial lending activity, the bank says it intends to adopt a more sustainable business model with less focus on mortgage lending.
To this end, it aims to cut its mortgage book from £107 million to around £50 million over the next three years. It also estimates that by refusing attractive remortgage rates to its customers whose fixed and tracker rates are coming up for renewal, it will see 60% of its outstanding mortgage loans redeemed.
It also plans to ditch its unsecured and commercial lending activity.
The move away from mortgage lending represents the bank's plans to restructure the business and repay its total debt to the Bank of England by 2010. It has now paid back about £2.9 billion of its Bank of England loan, bringing its total debt to the central bank around £24 billion.
The financial results show £12.2 billion of customer deposits were withdrawn from Northern Rock during 2007, to a large part reflecting the run on the bank back in September.
It now plans to rebuild its saving business but has pledged to never take advantage of its unique position as a national bank by offering products in the top three of any best-buy table.
Ron Sandler, executive chairman of Northern Rock, said: “The 2007 results reflect the impact of deteriorating market conditions and the liquidity and funding constraints experienced in the second half of the year by the company.
“Looking ahead, we have developed a business plan that we believe will help drive the bank back towards profitability, and ensure it has a sustainable future and remains an important employer in the North East. “