Mortgage demand boosts Northern Rock profits

The mortgage bank Northern Rock today announced a 14% rise in profits last year, buoyed by strong demand for residential mortgages.

The bank, Britain's eighth-biggest, said underlying pre-tax profits came to £504.6m, up from £441.5m in 2004 and ahead of City expectations of £497m.

Northern Rock, based in Newcastle, has weathered a softer housing market by holding down costs and taking remortgage business from its rivals.

It reported record gross lending of £26.9bn during the year - up 15.2% from 2004 - with its market share rising to 8.1% from 6.8%.

"In 2005, Northern Rock continued to achieve its strategic targets and is well placed to continue to do so," Adam Applegarth, the chief executive said.

Northern Rock said it had started 2006 with more loans than a year ago - a total of £5bn.

The bank, helped by a pick-up in the housing market during the final quarter of the year, said it expected the number of property transactions in 2006 to be broadly similar to that achieved last year.

"We do not expect to see a significant deterioration in credit quality going forward," Mr Applegarth said. "We have low levels of arrears, strong credit risk management and a low-risk balance sheet."

Mr Applegarth said he was optimistic that bank profits would grow by 15% for the next two to three years, and more at the "back end" of that time frame. "Looking forward, we're in extremely good nick," he told Reuters.

He added that Northern Rock had not received any takeover approach and was not interested in making a purchase itself. "Why would we want to take over somebody when we can pinch their business that we want?" he asked.

Northern Rock said it expected UK gross residential lending in 2006 to be similar to 2005 - at around £300bn - underpinned by a stable housing market and sustained remortgage activity.

"Economic conditions will remain fundamentally supportive, with interest rates remaining low during 2006," a Northern Rock statement said.

In morning trading, the bank was practically unchanged at 936.50p.