Northern Rock to increase debt management staff

An internal memo issued by Northern Rock to update staff during the consultation process, has been seen by the BBC. The document indicates that the bank is planning to more than double the number of people who work in its debt management department over the next year.

The move to expand the department suggests that the bank is expecting to see a considerable increase in the number of customers who are struggling to pay their mortgages.

A warning has already been given that arrears have more than doubled from the end of last year. As customers remortgage elsewhere, the fear is that the bank will be left with riskier clients.

Recent government figures have shown that 27,530 mortgage repossession orders were made in the UK during the first three months of 2008. This is an increase of 17% from the same period a year ago. Rising fuel and food costs will impact even more on people who have been finding it hard to meet all their commitments.

According to research conducted by ratings agency Standard & Poor, the proportion of homeowners in the prime mortgage category who are more than 30 days in arrears rose to 2.41% during the first quarter of this year. In the last three months of 2007, this figure was 2.11%.

Northern Rock has stated that it wants to heavily downsize its mortgage book, from about £100bn to £50bn.

As part of Northern Rock’s plans to reduce the size of the business, mortgage holders coming off low interest fixed-rate deals are being advised by the bank to look for cheaper deals elsewhere. The bank is stopping its pro-active mortgage retention programme, and customers are being offered help to transfer their mortgages to other lenders.

The bank, nationalised in February, hopes to be able to repay the £26.9bn Bank of England loan by the end of 2010, and expects to repay approximately £7bn of the loan by the end of 2008.