Northern Rock Mortgages Drop 90%, Dwarfing Extra Loans Pledge

March 3 (Bloomberg) -- Northern Rock Plc said new mortgage lending plunged by 26.6 billion pounds ($37.4 billion) last year, dwarfing the lender’s pledge to add 14 billion pounds in additional home loans over the next two years.

New residential lending dropped 90 percent to 2.9 billion pounds in 2008 from 29.5 billion pounds the previous year, the government-owned lender said in a statement today. Chancellor of the Exchequer Alistair Darling last week said the bank will expand lending by 14 billion pounds this year and next to aid the British mortgage market.

“It is nowhere near what they were lending in the past and in the context of where we need to be” in restoring British mortgage lending, said Julian Chillingworth, chief investment officer at London-based Rathbone Brothers Plc, which manages $21 billion. “It is a start, that’s all you can say.”

The British government said Northern Rock’s new lending was designed to increase the availability of mortgages after turmoil in financial markets caused many non-British mortgage lenders to withdraw from the U.K. market. Net U.K. lending secured on dwellings rose by 690 million pounds in January, compared with a 6.9 billion pound rise in January 2008, the Bank of England said yesterday.

“What I want to do here is use Northern Rock to help fill that gap,” Darling told the BBC on Feb. 23.

The new loans would be based on “responsible lending, which will be competitively priced to deliver a commercial return,” Northern Rock said today.

The Newcastle, England-based mortgage lender, the first British financial institution to be nationalized in the wake of the credit crunch, also said bad loan impairments more than tripled to 894 million pounds from 239.7 million pounds a year earlier.

Together Arrears

Northern Rock reported a net loss of 1.4 billion pounds for the 12 months ended Dec. 31, compared with a 243.5 million-pound loss a year earlier.

Three-month arrears on Northern Rock’s Together mortgages, which offered loans worth as much as 125 percent of property’s value, rose to 4.5 percent. In November, Chairman Ron Sandler told the House of Commons Treasury Committee that Together arrears were 3 percent.

Overall, residential arrears of more than three months have increased to 2.92 percent compared with 1.87 percent at the end of September.

The bank owes 8.9 billion pounds to the Bank of England, down from 26.9 billion at the end of 2007, the company said.

Retail deposits increased to 19.6 billion pounds from 10.9 billion pounds at the end of 2007, as savers took advantage of full government guarantees on Northern Rock accounts.

To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net

To contact the editors responsible for this story: Willy Morris at wmorris@bloomberg.net. Frank Connelly at fconnelly@bloomberg.net