Northern Rock, the High Street bank that was nationalised in February, today said the outlook for the UK mortgage market "remains highly uncertain", and more of its customers are falling behind with payments.

But Government-appointed chairman Ron Sandler said: "Solid progress has been made against our business plan. The Bank of England loan facilities are reducing and the balance sheet is contracting as a result of planned mortgage redemptions."

The emergency loan from the Bank of England thatwas used to bail out Rock last summer when the money markets dried up has come down from £26.9 billion at the end of last year to £24 billion at the end of March.

A major plank of Sandler's strategy is to cut the mortgage book, and he has set up a panel within the bank to help people coming to the end of their fixed-term mortgages to switch to another lender.

He also saidmore difficult economic and housing-market conditions had helped to increase the number of people behind with their mortgage payments. Arrears of three months of more rose from 0.57% at the end of December to 0.95% at the end of April. This is still below the Council of Mortgage Lenders average of 1.1%.

Sandler added: "While arrears have increased, the credit quality of the loan book remains satisfactory and at a level assumed in the plan. We remain fully focused on repaying the Government debt, releasing the guarantee arrangements and, in due course, returning Northern Rock to public ownership."

The bank issued only £1.2 billion of new mortgages in the first quarter of this year, less than a quarter of the business it was doing a year ago. It added that savers are coming back to the bank.