This compares with a £724.2m loss in the same period last year.

This is because mortgage portfolios kept by the “bad bank,” expected to be troubled by payment difficulties, performed better than expected, with 90% of their loans repaid on time due to the low interest rate environment.

The losses from the so-called “good bank” are likely to undermine government plans for a quick sale for the mortgage and savings arm.

This comes after the news yesterday that the mortgages and savings arm of Northern Rock, dubbed the ‘good bank’, is striking out for independence with the removal of the governments savings guarantee in three months time. This will not affect the wholesale guarantee arrangements in place for Northern Rock (Asset Management) plc.

The bank reports gross residential lending of £1,975 million in the six months to 30 June 2010. This includes £340 million of mortgage retention business. It reports the quality of mortgage lending as “good” with an average LTV of 60% for all completions agreed in the first half of the year. The average LTV of the total mortgage book was 59% at 30 June 2010.

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The bank reports above average mortgage arrears with 0.07% customers on its loan book more than three month’s payments behind.

The bank remains in Government ownership and said it is preparing itself for an eventual return to the private sector, “but only when conditions are right to do so, in the best interests of taxpayers.”

Plans are in place to make significant investment to allow the bank to fully separate from the dubbed “bad bank” or Northern Rock (Asset Management) plc.

Gary Hoffman, Northern Rock plc chief executive, said: “Following the successful legal and capital restructure of the former business, Northern Rock plc has made solid progress. The business is stable, well capitalised and a safe home for retail deposits – factors which allowed us to successfully release the Government retail savings guarantee well ahead of the original plan.”

He says the bank will complete its full separation from Northern Rock (Asset Management) in H2 2010.

“The Company is well positioned to capitalise on future growth opportunities and is now able to compete on the same terms as other banks and building societies,” says Hoffman.

Northern Rock is focused on providing excellent service to its customers and meeting their needs. The Company continues to operate from a position of capital strength and remains committed to returning to private ownership when the time is right.”

Retail deposit balances were £17.6 billion at 30 June 2010, compared with £19.5 billion transferred upon restructure on 1 January 2010.

Mortgage balances at 30 June 2010 were £11.2 billion. The increase in balances reflects net mortgage lending in the first half of the year, after customer redemptions.