Rock 'improving despite losses'

Northern Rock says it expects a 'significant improvement' despite losses in mortgage arrears

Nationalised Northern Rock has said that it expected a "significant improvement" in second-half trading as growth in mortgage arrears slowed.

The Newcastle-based lender will still be loss-making this year, but said the recent trend - helped by record low interest rates and improved debt management - had been "encouraging".

The company said it had helped more than 1,000 struggling borrowers to stay in their homes so far. The proportion of its loans more than three months behind edged up from 3.92% to 4.11% at the end of September.

Last week European officials approved the split of the business into a "good" and "bad" bank - with the healthy parts of the Rock to be sold back to the private sector.

The Rock has been in public ownership since February 2008 after being bailed out by the taxpayer in the early stages of the credit crunch.

The company still owes £14.5 billion to the Government after the previous policy of paying back the taxpayer as quickly as possible was reversed earlier this year to put funds into the ailing mortgage market.

Northern Rock lent a gross £1 billion in the three months to September and £2.3 billion for the year so far.

It originally planned to lend £5 billion this year but will not hit this target due to its constrained capital position before last week's overhaul. It hopes to meet its £9 billion commitment next year.

But the firm warned that conditions in the mortgage and housing markets "remain subdued".

"House price declines have moderated in recent months, but the company remains cautious as to the medium-term outlook, given rising levels of unemployment and weakness in the wider economy," it added.