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Northern Rock to slash mortgage book by 60%

Northern Rock has revealed plans to offload 60 per cent of its mortgage book at it looks to break even by 2011.

The bank says it will encourage borrowers to remortgage elsewhere after their mortgage terms expire, with the aim of reducing its balance sheet from £107bn to around £50bn.

It will limit its share of gross new mortgage lending to no more than 2.5 per cent and discontinue unsecured and commercial lending.

Last week, Northern Rock revealed losses of £167.6m for 2007 and warned that it will be “significantly loss-making” this year.

The newly nationalised lender said it will repay its Bank of England debt, currently at £24bn, by the end of 2010.

The lender has committed to limiting its share of retail deposit balances to 1.5 per cent in the UK and 0.8 per cent in Ireland and says it will not rank in the top three of any best-buy savings tables this year.

This comes in response to industry concerns that it will be competing on an unfair basis due to its Government backing.

The bank says last year’s loss of £167.6m – a dramatic collapse from its 2006 profit of £626.7m – was due to exceptional costs related to its strategic review and impairments to treasury and other assets.

Total gross lending of £32.3bn last year was down slightly from £33bn in 2006 while total net lending of £12.2bn fell from £16.6bn in 2006.

The board forecasts that the bank will break even in 2011, followed by progressive profit improvement.

Executive chairman Ron Sandler says: “We have developed a business plan that we believe will help drive the bank back towards profit-ability and ensure that it has a sustainable future.”


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