Northern Rock could be in a position to repay most of its loan from the Bank of England by early next year, according to an economist at New Star.

The analysis suggests that mortgage repayments by existing Rock borrowers could release £13 billion in 2008, reflecting a large number of expiring fixed-rate deals and its current uncompetitive mortgage rates.

Meanwhile, Rock’s attractive savings rates coupled with the unlimited government guarantee could lead to a £10 billion inflow of retail deposits.

New Star’s economist, Simon Ward, says, ‘Adding a £10 billion deposit inflow to mortgage repayments of £13 billion would leave Rock only £2 billion short of the estimated £25 billion Bank of England loan.

‘One risk to the scenario is that Rock will be forced to cut its savings rates to avoid charges of unfair competition. In addition, Rock’s new boss, Ron Sandler, may choose to repay the bank more slowly since the loan represents relatively cheap funding.’