NATIONALISED Northern Rock said yesterday that it expected a significant improvement in second-half trading as growth in mortgage arrears slowed.

The Newcastle-based lender will still be loss-making this year, but said the recent trend – helped by record low interest rates and improved debt management – had been encouraging.

Releasing its third-quarter results, the company said it had helped more than 1,000 struggling borrowers to stay in their homes so far, although the proportion of its loans more than three months behind edged up from 3.92 per cent to 4.11 per cent at the end of September.

Last week, the European Commission approved the split of the business into a “good” and “bad” bank, or BankCo and AssetCo as they are known, with the healthy parts of the bank expected to be sold back to the private sector.

To enable the move to take place, Northern Rock revealed last week that the Treasury will inject £8bn to help with lending, as well as provision for up to another £3bn in capital support.

Last month, Chancellor Alistair Darling told The Northern Echo that the split is due to be formalised at the turn of the year.