Northern Rock powers to £153m

NORTHERN Rock kicked off the banks' interim reporting season today by comfortably meeting expectations with a 16% rise in pre-tax profits to £153 million.

Lending by the former building society surged by 46% to a record £5.8 billion in the first six months of the year as borrowers rushed to take out mortgages and remortgages on the back of the housing boom.

Northern grabbed market share from other lenders, its share of net mortgage lending in the period rocketing to more than 8%, compared with a historic norm of less than 4%.

It insisted there was no sign of borrowers overstretching themselves: residential mortgage arrears were down by 5% compared with six months ago and were half the national average.

The quality of new residential lending had improved, with a lower proportion of borrowers being lent more than 90% of their home values. However, it lifted its provisionsfor bad debts from £11.6 million last time to £20.9 million to reflect the growth in personal unsecured lending.

Chief executive Adam Applegarth said: 'The housing market will slow, but the economic conditions of historically low interest rates, low unemployment and the lack of supply of new housing stock should underpin the mortgage market going forward.î

He said that as the housing market slowed, remortgaging - homeowners borrowing against the equity in their homes to finance other spending - would pick up, enabling the bank to continue meeting its 15%-25% target for assets growth. The Newcastle-based bank, which has carved out a niche as a no-frills, low-cost provider of mortgages, set an interim dividend of 6.5p, up 14%, and well above City forecasts.

It underlined its low-cost credentials today, announcing further improvements in costs as a proportion of assets and as a proportion of income.

Northern is the first of the British banks to report its interim figures and few are expected to do as well. Rivals are expected to be hit by a wave of bad debts from corporate borrowers, bringing overall profits growth across the industry to a virtual standstill.

Northern shares have more than doubled in the past two years on the back of the booming housing market. It floated in October 1997 and loses its five-year protection from takeover this autumn.

However, any predator would have to buy out a charitable trust, created at the time of demutualisation, which donates 5% of pre-tax profits - £7.6 million this time - to worthy causes in the North-East.