Northern Rock forecasts profits rise

Mortgage bank Northern Rock today predicted strong profits for this year amid expectations of a big increase in lending.

In a trading update, the Newcastle-based company said that it expected the housing market to remain buoyant, and forecast a 20% increase in its lending during the first half of the year.

High employment levels, a housing shortage and relatively low debt servicing costs would underpin the housing market, the bank said.

Analysts expect Northern Rock to make a full-year pre-tax profit of ?430m - 13% higher than last year - and the company said that it was comfortable with those estimates.

"Operating performance in the first quarter of the year continues to be strong ... we are again set to deliver against our low cost, high quality, high growth strategy," the chief executive, Adam Applegarth, said in a statement.

Northern Rock, which is one of the UK's most profitable mortgage banks, has benefited from the booming housing market, which is being fuelled by the lowest interest rates since the 50s. Britons have also been borrowing against the rising value of their homes, fuelling a consumer boom.

Figures released by the Halifax bank today showed a seemingly remorseless rise in house prices. Property values jumped 2.2% in March, the bank reported, making them 18.5% higher than a year ago.

Northern Rock said that its lending was continuing at very strong levels, with its three lending arms - residential, commercial secured and personal unsecured - all performing well.

Despite two recent rises in the base interest rate, taking it to 4%, the company said that there were no early warning signs of credit deterioration. Its residential arrears of more than three months' duration remained at around half the published industry average.

With house prices still rising strongly and mortgage equity withdrawal - mortgage borrowing not spent on property - running at record levels, City expectations that the Bank of England's monetary policy committee will raise interest rates next week are growing.

It had been thought that the Bank could have waited until May, when it releases its inflation report.

Bank figures yesterday showed that mortgage equity withdrawal hit a record high at the end of last year, surpassing the peak of the late-80s boom. Loans borrowed against property reached ?16.2bn in the fourth quarter, up 20% from the previous quarter.