Taxpayer cash lent to stricken banks is making its way back into Treasury coffers after Northern Rock announced it has paid back more than half the £26 billion owed.

This leaves a £11.4 billion bill outstanding as at September 30.

But the group's mortgage arrears figure jumped by nearly 60 per cent during the last three months, reflecting the fact that it has been left with poorer quality loans.

It has also seen the number of repossessions jump in the three months to September 30 from 491 to 4,201. Most of these were for properties secured with a "Together" mortgage, which allowed buyers to borrow up to 125 per cent of the property's value.

Consequently, Chairman Ron Sandler has warned that the bank, which racked up a near £600 million first-half loss to June 30, would be "significantly" loss-making this year.

The nationalised lender also said that no legal action would be taken against former directors at the centre of the group's collapse last year.

Lawyers said they had "insufficient grounds to to proceed with any legal action for negligence" against Adam Applegarth's team.

Northern Rock turned to the Bank of England for emergency support last summer, a move which prompted a run on the bank as savers rushed to get their hands on their cash.

Its nationalisation in February led to 1,500 job losses as it scaled back activity to pay back the Government.

Mr Sandler said: "I am pleased with the progress Northern Rock is making. We have continued to repay the Government loan well ahead of plan.

"However, dislocated financial markets and falling house prices mean that the pace of progress achieved to date will be significantly more challenging to maintain going forward."

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