Profits soar for Northern Rock

Northern Rock, the UK mortgage bank, today reported a 22% jump in pre-tax profit to ?186.2m on the back of record lending.

With interest rates at a 48-year-low, the bank lent a record ?7.8bn in the first half as home owners switched lenders and borrowed more against the inflated value of their homes.

Although it expected the housing market to cool further, Northern Rock said that its small size, large cost advantage, and ability to retain existing customers stood it in excellent shape.

The bank, one of the smallest but also the most efficient of Britain's major mortgage lenders, had a market share of 9.3% on June 30.

Shares in British mortgage lenders have suffered in recent weeks amid fears of a sharp fall in house prices after several boom years. But Northern Rock's stock was up 3p at 700.56p in morning trading after results came in at the top end of expectations.

"Northern Rock delivers again. These results are at the higher end of the consensus forecast and really do make a mockery of the way the market has treated mortgage-related stocks," a fund manager told Reuters.

Northern Rock so far has benefited from its willingness to stick to conservative lending policies and has resisted the temptation of going into niche markets such as lending to customers with poor credit records.

By contrast, other firms have grown rapidly by opening new markets but Northern Rock can point to its extremely low level of mortgage arrears - currently running at 0.55% compared to an industry average of 1.03%.

"One of the advantages of our relatively small size is that we are not trying to defend a huge market share by grabbing every customer going," said the chief executive Adam Applegarth. "We can be selective and still grow and I fully expect us to continue to be boringly predictable in the coming year."