GARY MURPHY is slightly uncomfortable with the latest boom in his business. In five weeks’ time, Murphy, a partner at the property auction house Allsop, will begin a two-day sale of about 500 British homes at the Café Royal in London’s Regent Street.

A year ago, repossessed houses accounted for about 40% of lots for sale. In the forthcoming auction, that figure will be no less than 60%.

“We are expecting repossessions to make up an ever-bigger part of our sales for the next 12 months or so,” said Murphy.

In auction rooms across the country the same trend is being seen, due in part to a growing number of properties being seized by Northern Rock.

Figures released by the nationalised mortgage bank last week revealed that the number of homes it had repossessed jumped 67% in the first six months of the year. The number of Northern Rock customers more than three months behind with their mortgage payments more than doubled over the same period.

Rival banks still insist the bank wrote riskier mortgages than most of its peers, and in larger quantities. Last week the government’s gamble on Northern Rock increased when it swapped £3 billion of the debt it is owed by the bank for a new type of share in the operation. Opposition politicians are sharpening their knives.

“I’ve already stood up in the House of Lords and said I think the losses to the taxpayer on Northern Rock will be between £5 billion and £10 billion,” said Lord Oakeshott, Liberal Democrat Treasury spokesman. “After reading the latest accounts, I think that figure will be £10 billion at the very least.”

Northern Rock’s executive chairman, Ron Sandler, said last week that the bank lost £585m in the first six months of the year compared with a profit of almost £300m over the same period in 2007. Stripping out £37m in redundancy costs, about £44m in fees to advisers and other charges, the underlying loss came to £176m. The scale of it raised eyebrows in some corners of the City.

“The underlying loss Northern Rock reported for the half year is basically the same as the figure we had forecast in our absolute worst-case recession scenario,” said an executive close to one of the parties that attempted to buy Northern Rock before its nationalisation.

He added: “That model was based on what actually happened in 1991-92. Northern Rock seems to have got there already.”

Sandler has said he can return Northern Rock to profit by 2011. About two years later, he expects to put it back into the private sector, either by selling or floating it.

Since the business plan was drafted, however, the rate of slowdown in the economy has surprised even the gloomiest bankers. Due to the nature of its mortgage book, Northern Rock is expected to be hit harder than other lenders.

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