The troubled bank is forseeing a rapid rise in those whose mortgage value will exceed that of their home.
Around one fifth of all Northern Rock customers will slip in to negative equity over the coming year, the Daily Telegraph reports.
The lender, which almost collapsed with the onset of the credit crunch last summer and has since been taken over by the government, is anticipating the rapid rise in its upcoming half-year results. Currently, the proportion of Northern Rock mortgage holders whose loan is worth more than their home stands at around one in twenty.
Negative equity is anticipated to be particularly high among Northern Rock customers because many were given deposit-free mortgages or required to put down a deposit of just five per cent. Indeed, it was the bank's provision of such generous loan terms to so many that was one of the key factors behind its 2007 collapse.
This is because the firm, having comparatively little capital inflow from customers due to its low deposit requirements, was instead unusually reliant on the wholesale money markets for revenue. When these seized up in the crunch, Northern Rock was left exposed.
A further source of stress among customers is the fact that, with little equity built up in their homes due to their having advanced such small amounts of money up front when they bought it, many are finding it difficult to make the switch to another lender.
Speaking to MPs earlier this year, Northern Rock chairman Ron Sandler admitted that this would impact negatively on the quality of the firm's mortgage book. "There is no question that those customers who represent the better credit risks find it easier to get good alternative products elsewhere," he admitted.
"And those that are perhaps poorer risk find it more difficult but we do expect over time that is going to increase the risk of our book."
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