Taxpayers' Rock bailout billions under new threat

Northern Rock shares tumbled again today amid fresh fears over the safety of taxpayers' money used to bail out the stricken lender.

Rock shares slumped a further 7% as it emerged that more than 70% of mortgages by the stricken bank are held by a Jersey-based trust company.

While it has long been known that Rock has securitised much of its mortgage book, the revelation of the true extent of that practice cast further doubt over Government claims that taxpayers' money is safe.

Northern Rock has been forced to borrow more than £26 billion of emergency cash from the Bank of England after the credit-market freeze cut off its funding line, although that figure is expected to rise sharply.

It is understood that £53 billion of mortgages on Northern Rock's books - more than 70% of the portfolio - are now owned by Jersey-based trust company Granite and have been used to underpin bond issues to raise money for the bank.

It means the level of assets which Northern Rock holds as guarantees for its creditors, including the Bank of England, has been dramatically reduced. Chancellor Alistair Darling this week told the House of Commons that taxpayers' money was safe.

However, the bank insisted that this was normal in its business model and how it raises money, given that it does not take as many deposits from customers as other lenders.

"To describe this as a black hole is nonsense," said a spokesman for Northern Rock. It also emerged today that the number of Northern Rock customers who have defaulted on home loan repayments has soared in recent years.

The bank is one of the largest lenders in Britain and rising interest rates have sparked thousands of defaults.

At the end of 2003, there were only 2500 Northern Rock customers in arrears by a month or more on their mortgages, which were worth £168.8 million. There are now 10,000 Northern Rock customers a month or more in arrears on loans worth nearly £1.2 billion.

Repossessions have also surged from just 80 in 2003 to more than 1000 last year. By the end of September this year, 912 homes that had been bought with Northern Rock mortgages had been repossessed.