Northern Rock's mortgage lending soars to £7.3bn

Record take-up by first-time buyers helped Northern Rock increase net lending by almost a quarter to £7.3bn in the first half of 2006.

The bank, Britain's eighth biggest, said yesterday that a strong housing market, and the attraction of its "lifestyle" mortgages, pushed underlying profits up 16%.

The continued growth in remortgaging, which now accounts for more than 40% of gross lending, also gave the bank a huge opportunity to poach customers from larger high street rivals.

Analysts welcomed the leap in underlying profits to £173.5m and the forecast by the company that it should comfortably reach full-year profits of £355m, 15% ahead of last year. The only concern followed a rise in impairment charges for bad debts, which rose from £26m to £45m from the first to second quarters.

But several analysts argued the rise was in line with other banks, and impairment charges overall remained well below the industry average. Much of the success at the bank rests with the introduction, seven years ago, of its Together mortgage range which let first-time buyers borrow nearly six times their income and 125% of a property's value. Borrowers can bolt on their debts in a personal loan so they can purchase homes that might otherwise be outside their price range.

Critics have argued the product encourages first-time buyers to overreach themselves, but the bank has consistently rejected these claims. Finance director, Bob Bennett, said many customers were college leavers seeking to gain a foothold on the property ladder and consolidate existing debts. He argued that flexibility, provided by a mix of loan and mortgage, was in line with changing circumstances. The bank applies strict affordability tests, he said, and arrears on Together mortgages were below 1%.

Chief executive, Adam Applegarth, said a dearth of supply of new homes would continue to support property prices in the longer-term, and could lift gross lending to as much as £320bn, from £288bn last year, and above the bank's official estimate of £300bn for this year and next.