Northern Rock and B&B borrowers face rising arrears

The bank managing Northern Rock and Bradford & Bingley's risky mortgages warned yesterday that arrears and repossessions would rise this year as household incomes are squeezed.

Richard Banks, the chief executive of UK Asset Resolution (UKAR), said higher inflation, unemployment and taxes would put pressure on mortgage borrowers, many of whom had overstretched themselves with loans that would not be approved now.

Nearly a third of customers contacted by UKAR have admitted they face problems repaying, he said.

Mr Banks added: "We have to some extent been inured from the real economy by virtue of low interest rates and it is going to be a tough year."

Northern Rock's "bad bank" made a profit of £401m last year after a £258m loss in 2009. It had 25,419 mortgages in arrears at the end of 2010, up 3 per cent, and 87 per cent of customers were up to date with payments.

Mr Banks said he was gearing up for problems ahead and had hired an extra 50 people for his arrears division. The bank is monitoring warnings like missed direct debit payments and county court judgements to identify customers that could face trouble.

"We have started contacting these customers and saying, 'Hey, do you want to talk?' Of our initial sample of about 600, 30 per cent have said they have problems," Mr Banks said.

Mr Banks said where possible the bank was deferring payments to give people the chance to hold on to their homes. But he added that for some it will make sense for them to sell rather than racking up more debt.

Many Northern Rock customers are vulnerable to harsh economic times because they took out the bank's infamous Together mortgage which allowed them to borrow up to 125 per cent of the house's value. Bradford & Bingley specialised in risky self-certified and buy-to-let mortgages.

* Coventry Building Society revealed yesterday it was considering bidding for Northern Rock's "good bank", which the Government plans to return to the private sector. The society said remutualising Northern Rock into the Coventry could be good for customers and that it would wait to see the terms of the sale.