The government owned bank is thought to have been given approval by the Treasury to lend up to 90% LTV.
The bank will take on about £5bn in new mortgages this year and up to £9bn from 2010.
A detailed planning exercise is now being undertaken by the company and further announcements will be made in due course as plans are finalised.
Additional funding to support new lending will be partly provided by an increase in the government loan to Northern Rock, with an extended repayment schedule.
To facilitate the new lending, whilst maximising capital efficiency and value for the taxpayer, a legal and capital restructuring of the company will be undertaken.
The new lending proposition means that the company’s existing mortgage customers will not be actively encouraged to leave when their mortgage deal matures and they will have more choice.
Gary Hoffman, chief executive of Northern Rock, says: “This is a very positive outcome for the Company, the taxpayer and, of course, consumers seeking a mortgage. Since entering public ownership we have concentrated on reducing the balance sheet through a mortgage redemption programme, and have therefore only written a limited amount of new lending.
“I am delighted that we can now return to the mortgage market in a more meaningful way, on a commercial basis. It represents another important step in the ongoing rehabilitation of the Company, returning to financial viability and ultimately returning to the private sector.”
Northern Rock announced recently that it was reversing its decision to scale back its mortgage lending, after actively trying to remortgage customers onto different lenders.
The extra money is expected to come from new deposits, repayments on existing loans and government money.