A deal that will allow Northern Rock customers reaching the end of their fixed rate mortgage deals switch to Lloyds TSB has been signed between the two UK banks.

The three-year deal, which comes into effect from July this year, will be open to certain Northern Rock customers who will be sent letters and brochures from Lloyds and the standard application fee will be waived for them.

Northern Rock has been working towards reducing the size of its loan book since its nationalisation last year.

Report said Lloyds TSB will pay a commission to Northern Rock for each customer who switches to it.

However, customers who choose not take up the offer could move on to Northern Rock’s standard variable rate (SVR) or switch to another provider.

Both banks said the deal will help in accelerating Lloyds new business growth in a low-risk way and support Northern Rock in reducing the size of its balance sheet.

For Northern Rock, also, the deal is likely to save jobs for 100 of its staff.

Although they did not say exactly how many mortgages they were expecting to switch under the agreement, Lloyds said it was expecting about 180,000 Northern Rock mortgage customers to come to the end of fixed rate deals in the next three years.

Although promising to be flexible, Lloyds has set a maximum loan to value ratio of about 80 per cent for the mortgages it will take on.

Its lending criteria are among the toughest with an average loan-to-value ratio of 44 per cent on its mortgage book and 63 per cent on new loans.