NORTHERN Rock yesterday announced a radical shake-up in a bid to strengthen its position among the UK's leading mortgage lenders.

The Newcastle firm - which revealed lending to home buyers was at record levels - said it was making a £30m investment in its Gosforth headquarters which could create up to 1,400 jobs during the next five years.

The company said it would also be opening ten flagship mortgage branches in major UK cities in the next year, in a bid to plug gaps in its coverage and reflect its status as a national mortgage bank.

But 20 smaller branches are to be closed, including eight in this region at sites including Peterlee, Stanley and Seaham.

Northern Rock said the branches, which will shut in the next two months, were "no longer appropriately positioned in appropriate locations" and had seen customer traffic drop to very low levels.

No compulsory redundancies were anticipated and the 110 staff affected would all be offered jobs at either Gosforth or Doxford, where processing and central administrative functions are carried out.

David Baker, the company's chief operating officer, said the company was not "blitzing" the North-East and said that all major towns and cities would continue to be served.

He said: "People are not arranging mortgages and loans at these branches and that is what our business is about."

The new branches include sites at Coventry, Derby, Norwich, Oxford, Portsmouth and Wolverhampton, and will leave Northern Rock with 84 branches in total.

The company said it was reflecting changes in the way customers were handling their finances and its own drive for business growth.

As well as the expansion to its headquarters, Northern Rock said it planned to take on 600 people at a new administration centre at Doxford Park, Sunderland.

The cost of the changes is expected to be about £5.5m, but this will be offset by the £7.3m that Northern Rock raised by selling its credit card business to the Co-operative Bank in May.

In a third quarter trading update for this year, the mortgage lender said it expected average house price inflation to become more sustainable in the next nine months.

Despite the forecast slowdown, it said it was comfortable with achieving full-year pre-tax profits at the top of City forecasts of about £378m.

Net residential lending rose 41 per cent year-on-year, it said.

Chief executive Adam Applegarth said: "These changes, taken together, will leave us with a much stronger national coverage, benefiting our position as the most cost-efficient UK mortgage lender.

"We are confirming our commitment to the North-East by way of further substantial investment in the region and the creation of a substantial number of new jobs in the future."

Branches affected in this region are:

l Wheeler House, Houghton-le-Spring, near Sunderland;

l Forest Hall, Shields Road, West Road - all Newcastle;

l The Chare, Peterlee, County Durham;

l Church Street, Seaham;

l Front Street, Stanley, County Durham;

l Sea Road, Sunderland.