Northern Rock posts a significant loss of £724.2m for the six months to 30 June 2009.

Northern Rock has announced a staggering loss of £724.2m for the first six months of 2009 – a 24% increase on the £585.4m loss made in the same period last year.

The bank reported a £602.2m impairment loss due to the number of loans in arrears, compared to the £191.6m for the first half of 2008. 3.97% of mortgage loans are more than three months in arrears.

According to the Council of Mortgage Lenders, the national average of mortgages in arrears is currently 2.39%.

The increasing number of bad loans is, in large part, due to the bank’s ‘Together’ loans which provided mortgages to the value of 125%. Taking these mortgages out of the equations drops the figure of loans in arrears to 2.85%.

Northern Rock was hit particularly hard at the onset of the economic downturn due to the bank’s model of borrowing short-term funds from wholesale markets to lend to mortgage holders.

The bank had to be bailed out by taxpayers in 2007 and was nationalised in February last year. It currently owes the government £10.9 billion.

In the half yearly results published today (4 August), Northern Rocks confirmed plans to split the bank into two separate entities called BankCo and AssestCo. The intention is to hold all the bad mortgages and government loans in AssetCo so that BankCo can carry out new positive lending.

The plans still require approval by the European Commission (EC) and Financial Services Authority (FSA).

Gary Hoffman, Chief Executive of Northern Rock, said: “The current environment continues to be challenging, however, against this backdrop Northern Rock is making progress against its revised plan and has delivered results in line with expectations.

“We anticipate receiving State approval in the autumn and the legal and capital restructuring of the Company to be completed by the end of the year. This ultimately prepares for a return to the private sector.”