Northern Rock warned this morning a serious downturn in the property market will restrict its ability to pay back additional Government debt after reducing its borrowing from the Bank of England by 57 per cent.

The nationalised bank also revealed today that its former board, including ex-chief executive Adam Applegarth who was vilified for his role in the bank's collapse, are off the hook.

Northern Rock said its external advisors Freshfields, the City law firm, and KPMG, the accountancy group, have completed a review of the role of its former management team in the collapse and has decided there are insufficient grounds to proceed with any legal action for negligence.

The board has also decided no action is warranted against the company’s auditors.

Northern Rock admitted today that it would be a major challenge to pay back the rest of its debt to the Bank of England at the same rate after reducing its debt from £26.9 billion in December to £11.5 billion by the end of last month.

Ron Sandler, chairman of Northern Rock, said: "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.”

The nationalised bank said residential mortgage arrears rose nearly 60 per cent from 1.18 per cent of the total book at the end of June to 1.87 per cent at the end of last month.

Repossessions rose 13 per cent from 3,710 to the end of June to 4,201 at the end of September.

Northern Rock also warned retail depositors had flocked to the nationalised bank last month as turmoil engulfed the global banking system.

The bank was forced to withdraw key products and lower savings rates to ensure it was not in breach of European Union laws against state aid. Northern Rock said yesterday it remains within the framework it agreed with the European Commission when the bank was nationalised.

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