Northern Rock stays solid

The property market may slow down but there is no risk of a crash, Northern Rock said yesterday as it revealed first-half mortgage lending levels up 63% on a year earlier.

The Newcastle-based mortgage bank is at the forefront of lending to first-time buyers, stretching traditional lending limits with new mortgage-plus personal loan products. It said its most popular mortgage over the past six months, accounting for a third of a record £5.8bn in lending, was a loan equivalent to 110% of the value of the home.

The bank expressed confidence that it is not overexposed to the property market bubble, adding that its residential arrears rate was half the industry average and that it has steered clear of the weakening buy-to-let market. It believes that it will continue to grant mortgages at a growth rate of 15-25% for the foreseeable future.

"We are expecting the market to slow down, but not to collapse," said deputy finance director Bob Bennett . "Interest rates will stay a lot lower for longer than anticipated. We can rule out a crash such as that between 1988 and 1992." Northern Rock expects interest rates to peak at a maximum of 4.5%.

Profits for the first half of the year were ahead 16% at £152.6m, slightly above analysts' expectations.

It said the surge in lending had given it an 8.5% share of the market, making it Britain's third or fourth biggest mortgage lender.

It claims to have a cost ratio half that of Halifax or Abbey National, enabling it to punch above its weight in the mortgage market.

Its interest rate margin - the difference between what it charges on mortgages and what it pays to savers - fell again to 0.98 of a point, the lowest in the industry.

It pared back growth in the unsecured lending market and continues to offer among the best personal loan rates, regularly topping "best buy" tables. But it admitted that it has tightened its credit scoring system and is turning more applicants away than before.