Ron Sandler, the CEO of the newly nationalised Northern Rock, has announced that mortgages in arrears for three months or more rose to 0.95% of their loan book at the end of April, up from 0.57% in late December.

Sandler blamed adverse economic conditions and the purposeful shrinking of Northern Rock's mortgage book. He maintains, however, that his recovery plan is on course and the overall quality of their home loans remained high.

Mr Sandler stated "We remain firmly focused on our business priorities of repaying the Government debt, releasing the guarantee arrangements and, in due course, returning Northern Rock to private ownership."

Northern Rock is now focusing on rebalancing it's business. Many 'riskier' customers- those with little equity in their homes, or with lower incomes- have been encouraged to remortgage with alternative lenders as they have focused on rebuilding their decimated savings base.

Gross mortgage lending was a 'modest' £1.2 billion at the end of the first quarter this year.