Sharp increase in mortgage arrears at Northern Rock

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The Independent Online

Northern Rock revealed yesterday that the number of mortgage borrowers in arrears has increased sharply since the bank was nationalised, as tougher economic conditions bite.

Mortgages in arrears three months were 0.95 per cent of its loan book at the end of March, compared with 0.57 per cent at the end of 2007. Ron Sandler, the bank's executive chairman, said the increase was partly due to the shrinking size of the balance sheet as the bank encourages customers to redeem their mortgages and go elsewhere.

He said there was no evidence that customers believed they could defer payments because the bank had been nationalised.

The bank said the shrinking of the mortgage market raised "challenges" for Northern Rock's aim of redeeming mortgages, shrinking its loan book and repaying its £24bn of loans to the Bank of England.

Mr Sandler said customers retained by the bank were more likely to be those unable to find another mortgage deal. This "adverse selection" of riskier customers was built into management's plans, Mr Sandler said.

He also said Northern Rock had started to rebuild its stricken deposit base, adding £2.3bn in the first three months. He insisted the bank had attracted customers without using its state guarantee to compete with rivals, who are watching closely for signs of unfair competition.

Shareholders, who have launched a legal action against the process for compensating investors under nationalisation, continued their campaign against the Government yesterday.

The UK Shareholders Association wrote to the Prime Minister offering to buy the Labour Party for £100 because the party was unable to repay creditors immediately. Under the terms of Northern Rock's nationalisation, Labour would be worthless, making the offer a generous one, the group said.

"Bearing in mind the current difficulties that are facing the party, a period of 'temporary private ownership' under a new management team may well give it the breathing space it needs to recover and protect the interests of all the stakeholders," UKSA wrote.

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