Northern Rock reveals £724.2m loss

Impairment charges on bad loans rose to £602.2m in the first half of the year from £191.6 at the end of 2008. It expects that figure to be similar in the second half.

Its half year results also revealed that its share of its mortgages in arrears, including its 125% LTV Together loans, had risen to 3.92% by June 30 from 3.67% at 31 March 2009 and 2.92% at 31 December 2008. Excluding Together, residential mortgage accounts over three months in arrears are 2.85% at 30 June 2009.

Repossessions fell from a peak to 2,522 compared with 3,620 at 31 December 2008, which it attributed to the actions taken to assist customers in difficulty to stay in their homes.

Gross residential lending stood at £1.3bn in the first half of 2009. The government has set the bank a target of new mortgage lending of £5bn for 2009 but the bank has said that new lending in 2009 is likely to be nearer to £4bn than the previously envisaged £5bn, reflecting its constrained capital position.

Northern Rock is to split itself into two companies, one of which will hold savers' money and be responsible for new lending, while the other will hold many of the existing loans and be responsible for paying back loans to the government.

Once the restructuring has been completed, the Treasury will provide additional funding if the European Commission agrees to allow the plan. After the capital injection has been completed, Northern Rock will start to increase its new lending and return to the private sector. It currently owes the government £10.9bn.

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 aid 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."