Northern Rock loan repayment ahead of schedule

Nationalised British mortgage lender Northern Rock said it was repaying its emergency government loan more quickly than planned, but warned the housing market slump could hinder further progress.

In a trading statement, Northern Rock said the outstanding balance on the loan was 11.5 billion pounds ($20.04 billion) at Sept 30, down from 26.9 billion pounds at the end of December last year.

In March, the lender set itself a target of repaying 25 percent of the loan by the end of 2008, with the remainder to be paid off by the end of 2010.

But Northern Rock warned on Tuesday that falling property prices and efforts by other banks to rein in their lending could slow the pace of repayment in the months ahead.

The lender has been paying off the loan mainly by encouraging existing customers to redeem their mortgages in favour of rivals' products.

"The extremely difficult housing and mortgage market conditions which have emerged in recent months will make the company's achievement of its objectives more challenging going forward," Northern Rock said in a statement.

Northern Rock added that more of its customers were having trouble repaying their loans, with the proportion of mortgage accounts more than three months in arrears climbing to 1.87 percent by the end of September, up from 1.18 percent three months earlier.

The bank also said on Tuesday that it would not be taking legal action for negligence against its former directors or auditors after a review concluded that there were insufficient grounds for doing so.

Northern Rock was forced to seek an emergency loan from the Bank of England in September last year after the global credit crunch shut it out of the wholesale money markets, its principal source of funding.

The bank was nationalised in February this year after government efforts to find a private sector buyer failed.