Northern Rock blames London for gloom

Northern Rock, the Newcastle-based mortgage lender, yesterday predicted the housing market would slow this year but blamed "Londonitis" for some of the gloomier forecasts for the sector.

David Baker, chief operating officer of the former building society, said: "This is still a very busy and active market and I don't recognise the doom and gloom.

"There's a lot of Londonitis about it," he said, referring to the fears of rapid slowdowns in certain hotspots in London and the south east.

Northern Rock, reporting an 18% rise in pre-tax profit to a record £326m, expects house prices to grow this year about 5% compared with 25% last year. It played down fears of a return of the negative equity that stalked home buyers a decade ago.

The group, floated on the stock market in October 1997, reported record net lending of £8.2bn, a rise of 60% on the previous year.

The provisions against bad debts, a closely-watched barometer of the financial health of its customers, rose to £43m from £34m. Unlike many banks, Northern Rock has focused on mortgages and refused to diversify.

It is the first of the banks to report its full-year profits. The results largely beat the City's expectations but its shares fell 10p to 578p.

"What a company - an 18% increase in the dividend and volume is growing. The [stock] market is being a bit harsh," said Donald Tosh, fund manager at Scottish-based financial firm Spears and Jeffrey.

Adam Applegarth, Northern Rock chief executive and one of the youngest on any FTSE 100 company, said he intended to buy more shares in the bank by the end of the week. "The one thing I'm not in charge of is the share price but Northern Rock looks very good value to me," he said.