The state owned bank which was nationalised in 2007 with £27bn worth of government support was originally charged with the task of ridding itself of its mortgage customers in order to repay the government. It has been so successful at following this policy that it has reduced the outstanding government loan to £9bn, thus taking out £18bn from the mortgage market over the last year or so.
The bank will now split into two divisions with one managing existing customers and the other offering mortgage finance to new customers. It is proposed that new lending will be in the region of £5bn in 2009 and £9bn in 2010, however the boost to the market should be greater as it will no longer be sucking cash out of the market.
A government statement read: "The new lending will be made on commercial terms to ensure that it represents good value for money for the taxpayer. It will allow Northern Rock to return to the mortgage market with a wide product range. To enable Northern Rock to focus on new lending, the company will be restructured so that the back book of mortgages is managed separately to its other business. The restructuring will be implemented subsequent to state aid approval.
The Government has made clear that it wants to see a well-functioning mortgage market where lenders lend responsibly and borrowers have access to a wide range of mortgages that they can afford to repay. Government policy towards Northern Rock is a part of meeting these aims."
