Northern Rock's bad debts jumped almost threefold last year as the slowing economy took its toll on the nationalised bank's controversial Together loans.
The bank said yesterday that loan-loss impairments jumped to £894m for 2008 from £240m a year earlier. Residential arrears of more than three months increased to 2.92 per cent at the end of the year from 1.87 per cent at the end of September.
The increase in arrears was mainly down to Together mortgages, which lent borrowers up to 125 per cent of their property's value including an unsecured loan. Arrears on those loans were 4.53 per cent at the end of 2008.
The bank's previous chief executive, Adam Applegarth, always insisted to sceptical analysts that the Together loans were low-risk but the high default rate has exposed the product as an example of the excess of the debt boom.
The bad debts were the main cause of Northern Rock's £1.36bn annual loss. The bank also suffered a £321m loss on risky Treasury assets and paid out £164m for professional fees and redundancy costs.
The bank announced last month that it would reverse its strategy of winding down its mortgage book as soon as possible to repay the Government's loans. Instead, it intends to offer up to £14bn of new mortgages over the next two years.
MPs on the Treasury Select Committee quizzed the bosses of UK Financial Investments yesterday about the switch in strategy and said it showed the Government was not running Northern Rock at "arms length". John Kingman, UKFI's chief executive, said the change was put forward by the bank's management because it thought it was missing out on commercial opportunities. The switch could yet fall foul of European state aid rules.Reuse content