Under the agreement Northern Rock will write to mortgage customers who meet certain credit criteria to offer them the opportunity to apply for a Lloyds TSB fixed rate mortgage product.
The new process is expected to commence in July 2008.
Customers who choose not to apply for a Lloyds TSB mortgage retain the option to stay with Northern Rock or to look to the market or their mortgage broker for an alternative deal.
Northern Rock says the arrangement with Lloyds is likely to require around 100 existing staff who may otherwise have been made redundant.
Northern Rock executive chairman Ron Sandler says: “We have already reported solid progress against our business plan, including meeting our planned target for mortgage redemptions, as we continue to repay the Bank of England facility. This new agreement with Lloyds TSB improves our ability to manage our mortgage redemptions and I am delighted that it has been concluded.
“It also gives some of our customers an additional option to consider when seeking to transfer to another lender, and under this arrangement they will be able to do so in a smooth and simple manner using our dedicated mortgage review service.”