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Rock's mortgage arrears increase

The recently-rescued UK bank Northern Rock revealed yesterday that mortgage borrowers in arrears increased sharply since the bank was nationalised as tougher economic conditions bite.

Mortgages in three months arrears were 0.95pc of its loan book at the end of March, compared with 0.57pc 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 was nationalised.

The bank said that 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 that 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.

Mr Sandler said Northern Rock has started to rebuild its stricken deposit base.

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