NATIONALISED lender Northern Rock has started offering mortgages to existing customers for the first time since late 2007.

The lender confirmed it had begun allowing customers coming to the end of deals to remortgage with the group if they have 25 per cent equity in their homes and meet strict affordability criteria.

Its decision is being seen as another step towards an imminent sell-off to the private sector, by improving the quality of its loan book to make it more attractive to potential bidders.

The Newcastle-based bank said it began offering loans to existing customers about three weeks ago and would look at “broadening the criteria going forward”, which could reportedly see it extend the scheme to those who need to borrow 90 per cent of their property’s value.

Speculation is already mounting over possible suitors for Northern Rock as the Government is widely expected to work towards a sale before the General Election, possibly as early as autumn.

Tesco was reported to be eyeing the lender, which was nationalised as the credit crisis brought the financial system within hours of collapse.

Virgin, which tried to buy Northern Rock at the time, is also thought to have expressed interest, but it is understood the Treasury is not in talks with any potential bidder.

Northern Rock – the first UK bank victim of the credit crunch – was propped up by almost £27bn in emergency loans from the Bank of England and nationalised in February last year.

The bank still owed about £9.8bn to the taxpayer in March, but has since slowed repayments of the debt to lend an extra £14bn over the next two years to help the housing market.

It is hoping to lend up to £5bn more this year.

As part of its sale plans, the Government is preparing to split the bank in two to smooth the path for a deal.

It is said to be working on plans to hive off its most toxic loans and assets into a socalled “bad bank” that will then enable it to sell the customer savings and network of 70 branches.

The bad bank would likely remain in Government hands and may be run by UK Financial Investments – the body set up to handle Government investments in banks.

■ The campaign for a Post Bank is being stepped up today with calls for Northern Rock to be used as the basis for a new state-backed bank in post office branches.

A coalition of groups, including unions and businesses, published proposals it said would give a big boost to the post office network and prevent further closures