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In its results for the first quarter of 2008 out today (12 May), then lender said it had made "solid progress" on its business plan and the Bank of England loan was continuing to be repaid "in line with expectations".

Gross residential mortgage lending in the first quarter was a "modest" £1.2bn.

Part of Northern Rock's business plan was to increase the level of mortgage redemptions, utilising its historical relationships with advisers to find alternative products with other lenders.

The lender also said the current market conditions, combined with a shrinking mortgage book had contributed to an increase in arrears levels, with mortgages three months and over in arrears rising from 0.57 per cent in December 2007 to 0.95 per cent at the end of April.

Ron Sandler, executive chairman for Northern Rock, said: "I am pleased to report that solid progress has been made against our business plan.

"The Bank of England loan facilities are reducing and the balance sheet is contracting as a result of planned mortgage redemptions.

"While arrears have increased, the credit quality of the loan book remains satisfactory and at a level assumed in the plan.

"Clearly the outlook for the UK mortgage market is uncertain, but progress against our business plan to date is encouraging.

"We remain firmly focused on our business priorities of repaying the government debt, releasing the guarantee arrangements and, in due course, returning Northern Rock to private ownership."