Northern Rock lends more as home loans market shrinks

Northern Rock said it had enjoyed a strong start to 2005, with lending up on a year ago, despite the slowdown in the housing market and weakening consumer borrowing.

The Newcastle-based bank yesterday claimed it was leaving other high street rivals in the shade, with its 6% increase in new mortgage lending contrasting with a 17% decline for the home loans industry as a whole.

But it warned that lenders would be fighting for slices of a smaller cake this year, with the overall mortgage market likely to be worth £260bn in 2005 - down from last year's record £291bn.

"Lending has continued strongly into quarter one 2005 with all three lending arms (residential, commercial secured and personal unsecured) performing well," the bank said in a trading statement.

It is starting the second quarter with a £4.5bn "pipeline" of residential loans - 6% higher than the same time last year.

The bank said while the housing market was clearly slowing, it should be supported by low unemployment, a continuing desire among many people to own their own home and a robust remortgage market. It expects mortgage arrears to remain relatively low.

Northern Rock's "lifestyle" products account for about 30% of its new business.

These include its mortgage-based equity release products aimed at older homeowners looking to unlock some of the value tied up in their homes; its "Together" home loans that let cash-strapped buyers borrow more than the value of the property they are purchasing; and its loans aimed at buy-to-let investors.

Northern Rock is one of several banks that have recently relaxed their lending rules on buy-to-let mortgages, allowing amateur landlords to borrow more money.

The former building society said it was "comfortable" with analysts' predictions that its pre-tax profits would climb 10% this year to about £475m.

Adam Applegarth, its chief executive, said its strong first-quarter performance "demonstrates the strength of our business model".

The shares closed down 5.5p at 792.5p.