Telegraph.co.uk

Nationalised bank Northern Rock has lost more than half a billion pounds in the first six months of this year.

The bank, which is based in Labour's North-East heartland and was controversially taken into state-ownership in February, racked up a pre-tax loss of £585.4m in the first six months of the year as home owners who took out its mortgages struggle with their repayments.

'The external environment has deteriorated and the consequences of this for Northern Rock are increased credit losses,' the lender said today.

The bank, whose difficulties proved a starting gun for 12 months of financial turmoil in the UK, warned today that arrears on its mortgage book were rising as house prices continued their slide and the wider economy faced recession.

Repossessions have risen to 3,710 by the end of June compared to 2,215 at the start of the year, while arrears outstanding for more than three months have more than doubled to 1.18pc of its mortgage book .

Northern Rock admitted that 'whilst this increase is partly attributable to the company tightening the application of its arrears capitalistion policy and the shrinking of the mortgage book, the underlying trend is all too evident.'

As the bank is state-owned it cannot fail, but the burden of its growing losses will fall on taxpayers

The revelation of the loss comes almost 12 months after ex-Northern Rock boss Adam Applegarth said that the world changed for ever for the lender as global financial markets froze.

British banks have all been hit by rising mortgage defaults, but Northern Rock faces greater difficulties than most because it offered particularly high risk loans of up to 125 per cent of the value of properties.

About 5pc of the nationalised lender's mortgages are already thought to be in negative equity and another 15 per cent have been lent to households with less than 10pc equity in their homes. That equity will be rapidly whittled away next year as house prices tumble.

Northern Rock has also said it will cut 1,300 jobs and redundancy costs have added to its losses.

However, Northern Rock said that it is on track to repay its £26.9bn bail-out from the taxpayers at a faster rate than initially planned. According to this morning's results, it has repaid £9.4bn of the Bank of England loan.