Northern Rock: Market will slow down

MORTGAGE lender Northern Rock today predicted housing activity would be 'subdued' next year, as would-be first-time buyers are squeezed out of the market by an army of buy-to-let investors.

Playing down the risk of a housing crash, the bank said the market would remain underpinned by good employment prospects, low debt servicing costs and a housing shortage.

But it added: 'First-time buyers will be slower to return to the market than in previous cycles, given the increased indebtedness of 18 to 25 year-olds and the excess demand for first-time buyer priced properties from investors in buy-to-let.'

Northern Rock forecasts house prices will rise by up to 5% next year, in line with earnings growth. That is above the 2% mortgage rival Nationwide predicted today.

In a trading statement ahead of preliminary results at the end of January, Northern Rock said 2004 profits would meet market expectations amid strong trading.

The consensus among analysts is for annual, pre-tax profits of £429m, up 12% on a like-for-like basis.

Northern Rock said new international accounting standards which come into force next year would have 'no material impact' on profits, affecting them by less than 5%.

The company has £5.4bn of agreed lending business in the pipeline, up 23% on a year ago. It said there were no signs that credit quality is deteriorating.

Chief executive Adam Applegarth said: 'Northern Rock continues to deliver strong growth in high-quality assets, with a consequent rise in market share.

'Looking ahead to 2005, we expect this performance to continue.'