First-time home buyers on the rise

First-time buyers are returning to the UK housing market, the mortgage bank Northern Rock reported today as it said it was on target to make a £352m profit this year.

Britain's eighth biggest listed bank said it was comfortable with the consensus forecasts, up 14% from last year.

Northern Rock, which has been consistently profitable by concentrating on low-risk, low-cost mortgages, said there had been a "small but encouraging increase" in the number of first-time buyers returning to the housing market at the end of last year and the beginning of 2006.

"We expect this gentle trend to continue, providing increased support to the home-moving market, which is expected to see a slight increase in the number of housing transactions compared to 2005," Northern Rock said in a statement.

The bank gave the upbeat housing outlook despite a slowdown in economic growth.

"Whilst unemployment is increasing, it remains at historic low levels, and inflation is under control," Northern Rock said. "We expect these trends to continue and therefore that interest rates and debt servicing costs will be relatively low."

Northern Rock predicted that the UK gross mortgage market would grow to about £300bn this year, up from £288bn in 2005.

During the first three months of 2006, Northern Rock's total net lending was 26% higher than a year ago. Going into the second quarter, Northern Rock's total lending stood at £5.7bn, an increase of 15% over the same time last year and 8% higher than at the start of 2006.

Adam Applegarth, the chief executive, said: "Based on the enduring strengths of our business model, we are comfortable that we are again set to deliver against all our strategic targets in 2006."

Northern Rock's share of the mortgage market rose to 8.1% last year from 6.8% in 2004.

Despite a modest increase in arrears in the mortgage industry and within some areas of consumer lending, Northern Rock said arrears remained low.

"Our strong underwriting criteria, the high proportion of borrowers with a proven payment track record and the targeting of low risk sectors ensure credit quality remains robust," Northern Rock said.