The UK mortgage lender's losses jumped from £168 million in 2007 to £1.36 billion in 2008, mainly due to impairment losses on its loans, which grew from £240 million in 2007 to £894 million in 2008.
"While this was always envisaged in the [business] plan, the reported loss for 2008 has been exacerbated further by the rapid deterioration in the external environment, with a combination of rising arrears and falling house prices leading to an increased loan impairment charge," said Northern Rock chief executive Gary Hoffman.
Northern Rock was rescued by the UK government following problems in the credit markets in September 2007 and was taken into temporary state ownership in February 2008.
Hoffman said repayment of the company's government loan, set as a priority in its March 2008 business plan, is ahead of schedule despite the losses. The company paid off £18 billion of the loan during 2008, reducing the total from £26.9 billion to £8.9 billion. "The company has been successful in reducing the government loan well ahead of the plan, mainly through a programme of targeted and proactive mortgage redemptions," said Hoffman.
Northern Rock said new residential mortgage lending dropped from £29.5 billion in 2007 to £2.9 billion in 2008, in line with its objective to maintain a presence in the market but scale back its balance sheet. The company no longer offers commercial and unsecured loans, but plans to increase its mortgage lending to £14 billion over the next two years, in an effort by the UK government to fill the gap left by the withdrawal of private-sector lenders.