Northern Rock posts record profit

Northern Rock, the mortgage lender, today reported a record pre-tax profit of ?326m for 2002, an increase of 18% over the previous year.

Profits for the year to the end of December came in at the higher end of forecasts, but Northern Rock shares shed 1.9%, dragged down by a market nervously predicting a war with Iraq.

For its part, Northern Rock remained upbeat on its prospects and saw no sign of a collapse in house prices, although it forecast a softer market this year.

"The housing market is set to be quieter in 2003," Northern Rock said. "The economic fundamentals of low interest rates, low inflation, low unemployment and a very limited increase in the supply of new housing stock will continue to underpin the market."

House prices rose 25% last year, but most analysts, including the Bank of England, do not see a sharp fall in prices as long as interest rates stay low. The Bank has held its rate at 4% for the past 14 months, encouraging a record number of consumers to take out mortgages.

Mortgage lending reached ?56.4bn last year, according to the British Bankers' Association (BBA), although there was a slowdown in the pace of borrowing in the last three months of last year. Fewer loans were approved last month than in December 2000, indicating that a "correction" was under way in the housing market, said the BBA's chief executive, Ian Mullen.

Northern Rock reported record gross lending of ?14.1bn, an increase of 59.6% over 2001. Net lending was a record ?8.2bn - an increase of 60.7%. The total share of UK net mortgage lending came to 9.2%.

Analysts had forecast Northern Rock profits in the range of ?318m-?327m, with a consensus forecast of ?323m. In 2001, pre-tax profits came to ?276.5m. Despite Northern Rock's solid results, which kick off the banking industry's annual results season, analysts do not expect other British banks to do as well.