Northern Rock was today caught up in a row over Government spin after the Treasury admitted the bank may not lend as much as the £14 billion suggested over the next two years.

Sources indicated the nationalised bank would lend £5 billion of new mortgages this year followed by another £9 billion next year to resuscitate the housing market — a total of £14 billion.

However, it later emerged that while Northern Rock will lend £5 billion this year it could lend as little as just £3 billion in 2010 — the same as it lent in 2008 when it was ordered to all but withdraw from the market.

A Treasury statement said: “A new business strategy has been agreed that will see around £5 billion of new mortgage lending for 2009 and between £3 billion and £9 billion from 2010 onwards, subject to market demand.” Chancellor Alistair Darling said the extra lending was “against a background where a lot of the foreign-based banks have withdrawn” from the market.

“What I want to do here is use Northern Rock to help fill that gap,” he said. But Louise Cuming, head of mortgages at moneysupermarket.com, said the move would do “very little” and claimed it was a “drop in the ocean”. She said: “It is lip-service. In terms of real help its such a small amount, it won't make a huge difference.” A total of £256.4 billion was lent by British mortgage lenders last year while Northern Rock alone lent £29.5 billion in 2007.

However, the Treasury insisted it would make a difference and Darling said the move should be seen as part of the wider package.

“It is important that people have this in perspective and don't say, This is the one thing you need to do and will all make a difference',” he said.

The Chancellor also denied the Government was fuelling “ridiculous” mortgages, saying the bank would cap loans at up to 90% and stressed they would be made at “sensible” levels.

The order to increase lending came after Northern Rock reduced its debt to the Government from £18 billion at the start of last year to £8.9 billion today.

...And the loan arrears pile up

Nationalised bank Northern Rock today said thousands of households could not pay for their mortgages as it counted the cost of years of reckless lending.

The troubled Newcastle bank — put into state-ownership a year ago — revealed that 17,200 mortgage customers, or 2.92%, were more than three months in arrears at end of December. That was up from 11,500, or 1.87%, just three months earlier as Rock paid for its decision to offer huge home loans to people who could not afford them.

The bank also reported losses of £1.4 billion for 2008 — nearly 10 times more than the £167.6 million it lost in 2007 when it was crippled by the freeze in credit markets and the UK's first bank run for 140 years.