Northern Rock is planning to more than double the number of people working in its debt management business in a move that will spark fresh fears of widespread repossessions over the coming year.

An internal memo reveals the stricken mortgage bank is expecting to see a huge increase in the number of customers struggling to pay off their mortgage over the next year.

It proposes to increase the number of full-time people working at its debt management arm to 444 from the current 176.

The memo was seen by BBC Radio Newcastle and comes as Northern Rock consults with unions over plans to lay off more than 2,000 staff over the next three years.

Northern Rock is having to cut costs following its nationalisation in February.

A spokesman told Times Online: "As part of Northern Rock's business plan the company is committed to further strengthening its controls and processes and debt management is one area where this strengthening will occur."

He added the new recruits would come from other areas within the business. Around 2,000 staff at Northern Rock face redundancy under the government's cost-cutting programme.

The plans will add to growing concerns about the pressures faced by homeowners as mortgage bills rise alongside energy costs and food prices.

Nationwide, Britain’s biggest building society, yesterday said that house prices have fallen by 2.5 per cent in May, the biggest monthly decline since its records began in 1991.

Economists at Morgan Stanley believe that nearly 370,000 borrowers will be in negative equity if prices fall by a total of 5 per cent this year and next.

House prices have fallen by 4.7 per cent since the beginning of the year.

Northern Rock’s cost-cutting proposals will see the size of the workforce fall from 5,485 people to 3,440 over the next three years. The number of customer service staff in its lending division would fall by 1,152 to 478 by next year.

The Newcastle-based bank has already said it wants to halve its mortgage book from £100 billion to £50 billion.

The bank remains the biggest victim of the credit crunch in the UK. The credit squeeze restricted the bank’s ability to finance its business, which relied on borrowing to fund mortgage lending rather than savers’ deposits.

Its call for emergency funding from the Bank of England sparked the first run on a UK bank for a century.

Northern Rock's first post-nationalisation repossession was believed to have been a small terrace house in Co. Durham three months ago.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive