Profits have risen at UK Asset Resolution, the company set up by the Treasury to take on the unwanted mortgage book from Northern Rock and Bradford & Bingley.
ITV News Business Editor Joel Hills is following developments.
Bad bank doing rather well. UKAR (N Rock + B&B's unwanted mortgage book) posts profit of £1,259m for year to 31 March 2014, up £186m.
The total number of NR and B&B mortgage accounts three or more months in arrears fell 39% to 15,483 in last 12 months.
93% of UKAR's 529,000 mortgage accounts up-to-date with payments. Thanks to "more positive housing market and improving economic outlook".
Lloyds group director of mortgages Stephen Noakes has said that while the housing market outside of London was improving the recovery is "fragile" as "prices largely remain below their peak."
He said: "It is important we don't disrupt this recovery. But in London, house prices are almost now 30% above the 2007 peak.
"This is largely driven by issues of supply which are particularly acute in London and this is having an impact on income multiples which are failing to keep pace with asset growth.
"This prudent update to our lending policies is intended to manage risks to our business and for our customers."
Britain's biggest mortgage lender has said that from today, people applying to take out a mortgage worth more than £500,000 will see the amount they are allowed to borrow limited to four times their income.
ITV News Business Editor Joel Hills reports:
Lloyds says new limits will impact 2% of total mortgage lending. Bank wrote £37bn of new home loans in 2013.
Governor of the @bankofengland doesn't see a housing bubble but Lloyds Banking Group does, in London at least.
Lloyds Banking Group said it has been designed in a bid to tackle the pressure of housing inflation in the London market.
The Mortgage Market Review (MMR) rules aim to ensure there is no return to any irresponsible lending practices of the past.
But some concerns have been raised that it could slow down the housing market, which has been springing back into life over the last year, as the industry adjusts.
Each lender will have their own interpretation of the new rules, but in general people are likely to be asked for more detail about regular outgoings such as childcare, food, household bills, loans, credit cards, toiletries, hobbies and leisure activities, to see if they can afford a home loan.
It's important for people to prepare a lot earlier, potentially six months before you apply. Start looking through your documentation and go through a budget.
Lenders will also look for any impact that future life changes could have, such as when they plan to retire and how they plan to spend their old age.
There have also been reports of some people being asked if they are planning to start a family as lenders gear up to comply with the rule changes.
A clampdown on mortgage lending has come into force which will see lenders delve more deeply into people's personal lives, from their plans for parenthood to how they will spend their old age.
The industry-wide changes affect home buyers and people looking to re-mortgage and they will mean that lenders have to take a much stronger interest in people's spending habits and how their life plans could affect their ability to meet their repayments.
Mortgage applicants will need to sit through longer interviews, provide more paperwork to back up what they are saying and could find themselves taken aback by the probing nature of some of the questions they will be asked.
New rules that come into force on Saturday will make it harder to get a mortgage - here's how it will affect you.Read the full story ›
People applying for a mortgage are facing tougher affordability checks which delve into their spending habits on outgoings ranging from childcare, travel and clothing to wine clubs and even a flutter on the horses.
The higher hurdles are being put in place as lenders gear up for new rules which come into force on Saturday under the Mortgage Market Review (MMR), which aim to prevent any return to irresponsible lending.
Experts are warning people that they may want to consider reining back on their spending several months before applying for a mortgage, as providers will want to sift through around three months of bank statements "with a fine tooth comb".
The new industry-wide rules mean mortgage providers have to take a much keener interest in an applicant's regular outgoings, which could include what they spend on food, household bills, loans, credit cards and leisure activities, in order to weigh up whether or not they can afford their home loan.
Around £16.6 billion worth of mortgages were advanced to borrowers in August, marking a 28% increase on the same period in 2012, the Council of Mortgage Lenders (CML) said.
The estimate for August marks only a slight drop on the £16.7 billion worth of mortgages advanced in July, which was the highest figure seen since October 2008.
There have been more encouraging signs of renewed confidence in the UK housing market , with figures for last month showing mortgage lending was at its highest for five years.
The Council of Mortgage Lenders revealed lending rose to more than £16 billion in July - up 12 percent on the previous month.
Consumer Editor Chris Choi reports: