The bank said it has seen a continued improvement in arrears under three months.
Its stock of unsold repossessed properties has halved, from a peak of 4,201 at September 2008, to 2,193 at the end of September 2009. The proportion of its loans more than three months in arrears edged up from 3.92% to 4.11% at the end of September.

Gross mortgage lending rose to £1bn in the three months to 30 September to reach £2.3bn for 2009. The bank added the quality of new lending remains high with the average loan to value ratio of new lending at 55%.

Despite recent encouraging trends, Northern Rock confirmed it would make a loss for the year due to loan loss impairment. It also said that it will not hit this target of £5bn lending this year due to its constrained capital position. It hopes to meet its £9bn commitment next year.

Gary Hoffman, chief executive at Northern Rock, said: “I am encouraged by the improving financial performance of the company. House price declines have moderated in recent months but the company remains cautious as to the medium-term outlook, given rising levels of unemployment and weakness in the wider economy.”

Last week the European Commission (EC) approved the split of Northern Rock into a new savings and mortgage bank, Northern Rock Plc, and Northern Rock Asset Management, which will hold existing mortgages and unsecured loans and will be closed to new lending.

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The bank said that the new mortgage and savings bank will be well capitalised and highly liquid enabling it to provide additional mortgage lending in line with the Government’s objectives.