It will allow Northern Rock to return to the mortgage market with a wide product range.
To enable Northern Rock to focus on new lending, the company will be restructured so that the back book of mortgages is managed separately to its other business.
The restructuring will be implemented subsequent to state aid approval.
The Treasury said that the Government had made clear that it wanted to see a well-functioning mortgage market where lenders lent responsibly and borrowers had access to a wide range of mortgages that they could afford to repay.
Have your say on this using the comment section below