Lender says house-price rises will slow

Mortgage lender Northern Rock yesterday said that house price growth would slow this year, as it shies away from lending to more risky first-time buyers.

It announced record profits for 2003, up 19% to £387m, and net lending up 27% to £8.5bn.

Northern Rock is concentrating on keeping its existing clients, winning remortgages and lending to people moving house. Its proportion of lending to first-time buyers dropped to 23%. "If people have been in a house seven years, the chances are they have been servicing debt and been in employment, so they are building equity and a track record," said Bob Bennett, the company's finance director.

He said there was no danger of a sharp drop in house prices. "We do not believe there will be a house-price crash. We think house-price inflation will go from 10% this year to 4% to 6% by the end of 2004. We think there will be a slowdown."

Investors have been concerned about high-street banks, worried about consumer debt and fearing a housing market collapse. Northern Rock's results yesterday, the first in the banks' reporting season, augured well.

Analysts said Northern Rock would be able to weather any downturn better than competititors.

"[Northern Rock] are managing to keep their customers very effectively, that is very important these days," said Hugh Pye, an analyst at investment bank BNP Paribas.

"They have a bright independent future and are growing strongly, they don't need to become part of another group."

Northern Rock is casting its eye over small mortgage books from other lenders, which could include Standard Life and Egg, as it tries to bolster its relatively small share of the market.

Mr Bennett said Northern Rock was improving sales of home equity release products where elderly people take money out of their home. "That product will grow significantly as the population gets older and the state moves away from full protection," he said.

Northern Rock is also looking at launching internet-based savings products in Europe.