The bad bank behind failed lenders Northern Rock and Bradford & Bingley paid another £1.9 billion sterling to UK taxpayers in the first half of the year.
UK Asset Resolution (Ukar), the state-owned firm responsible for winding down the mortgage books of the collapsed banks, said government repayments surged over 70% from £788m a year ago.
Its underlying pre-tax profits increased 10% to £529m as the improving economy and housing market saw the number of borrowers in severe arrears drop 29%. Repossessions fell more than 8% to 3,871 and charges for bad debts dived.
''All that suggests that the economy is starting to improve and people's finances are starting to improve,'' chief executive Richard Banks said.
Britain's housing market has been stimulated in recent months by government schemes that have boosted mortgage approvals and lifted prices. The Help to Buy initiative allows buyers to get on to the housing ladder with a 5% deposit, while Funding for Lending encourages banks and building societies to lend more to households and businesses.
"There are definite signs of a moderate recovery and the mortgage market has been stimulated through the Help to Buy scheme. I think it will be a continued steady reduction in the number of customers in arrears,'' Mr Banks said.
Ukar has now repaid a total of £6.6 billion to the Government, but still owes another £42.1 billion. It repaid £1.3 billion in the first half, with fees, interest and taxes of around £500m taking the half-year total to £1.9 billion. It expects to fully repay the state within the next 10 years.
The company was formed in October 2010 to manage the loan books of B&B and Northern Rock after the former building societies failed during the financial crisis. It is winding down a £66.1 billion total loan book and has 584,000 customers, of whom around a third are on interest-only mortgages.
Ukar said mortgages three or more months in arrears fell to 21,332 from 30,222 a year earlier. Charges for impaired loans dropped by £79.2m to £91.5m.
Mr Banks said the book's improving health will increase its attractiveness to potential buyers.
"The better the economy, the fewer customers are in arrears and the more valuable these (loans) will be," he said. "If we can sell them, we should get a better return,'' he added.
Last month Ukar raised £400m after selling a portfolio of Northern Rock's personal loans to OneSavings Bank - the group behind mutual Kent Reliance - and debt recovery business Marlin Financial.
OneSavings Bank, which is backed by US private equity group JC Flowers, bought Northern Rock Asset Management's loans that are not in default, adding 70,000 new customers.
Mr Banks said that, while interest rate rises appear a long way off, it has contacted 18,000 interest -only customers who have mortgages with 10 or fewer years remaining to ensure they have plans to repay the loans.
