The bank behind failed lenders Bradford & Bingley and Northern Rock is to focus on contacting borrowers who could be vulnerable to interest-rate hikes in a bid to keep mortgage arrears down.

Crossflatts-based UK Asset Resolution, which has seen a near 40 per cent fall in the number of borrowers three months or more in arrears, is ready to target customers most vulnerable when increase rates start to rise.

Richard Banks, UKAR chief executive, said a one per cent rise in the base rate could hit around 22,000 borrowers – although the impact would depend on the speed and level of any increases.

He said UKAR would continue with its pro-active customer contact policy as the prospect of interest rate rises grows .

He said: “We have concerns that rate rises could impact on some of our customers but will be taking steps to help minimise those risks.

“Of course, as the economy improves and more people receive pay rises or are able to work more overtime, then small incremental interest rate rises could be absorbed by many. Also, the Bank of England has signalled that it will make gradual rises when the time comes to increase interest rates.”

UKAR said a faster-than-expected rise in house prices over the past 15 months, combined with continued low rates of interest, was good news for its customers and had driven increased mortgage redemption activity.

But many households continued to be under financial pressure and the prospect of interest rate rises and higher mortgage payments was a concern for many.

UKAR said it was developing a series of contact programmes for customers who may be at more risk when interest rates begin to rise, including those who will still be repaying their mortgage in retirement.

It has also written to 31,000 customers with interest-only mortgages due to end in 10 years or less to ensure they have plans in place to repay their loan. More than half of customers have responded.

Mr Banks also revealed that UKAR, which has 1,100 staff at Crossflatts and 1,000 near Sunderland, was looking to sell more assets, mainly performing mortgages, to other lenders. This would follow the sale of £400 million of Northern Rock unsecured loans to OneSavingsBank and the disposal of £500 million of assets to Virgin Money.

UKAR said it has repaid £10.4 billion to the Government as rising house prices and low interest rates encouraged borrowers to look elsewhere for deals.

The amount returned since the 2010 formation of UKAR - the state-owned firm responsible for winding down the B&B and Northern Rock mortgage books - includes £5.1 billion in the 15 months to March 31.

UKAR said: "A lot of good work has been achieved to date and we expect to repay the remaining £38.3 billion debt in full."

An 11 per cent reduction in UKAR's loan book over the 15 months has been driven by mortgage redemptions, leaving it with 467,000 customers and 529,000 mortgage accounts.

More than 93 per cent of borrowers are up to date with their payments, with mortgage accounts three or more months in arrears, including possessions, down by 39 per cent to 15,483 since December 2012.

Underlying profits were £1.26 billion for the 12 months to March 31, a rise of £185.5 million on the previous year.

Richard Banks said: "UKAR has continued to make good progress over the past 15 months.It is also pleasing to see the significant reduction in arrears due to the dedication and professionalism of colleagues proactively working with our customers to help them achieve the right outcomes."