Remortgaging fuels Northern Rock

RECORD demand from homeowners rushing to remortgage fuelled strong growth at mortgage lender Northern Rock in the first half of the year.

The bank now has a £5.8bn pipeline of residential lending business, up 47% on a year ago and 69% higher than it was at the start of the year.

The surge is largely due to people trying to lock in to the current offers before interest rates rise too far. Unlike the end of the last housing boom, the rate increases are unlikely to dampen demand for mortgages.

This, according to Northern Rock, is because many lenders no longer use redemption fees to penalise borrowers for moving to other banks and homeowners are remortgaging furiously as a result.

Chief executive Adam Applegarth said he expected remortgaging activity to remain strong and that this would substantially offset any drop in house purchase lending.

However, he added, there are already signs of a slow-down in the volume of transactions and the rate of house price inflation.

Residential net lending will also slow, Applegarth predicted, because fewer people will take equity out of their properties once house price growth slows.

Despite Northern Rock's strong mortgage lending figures, the bank – Britain's ninth biggest by assets – missed the consensus of analysts' forecasts for the first half.

The mortgage lender's profit for the six months to 30 June rose 14.1% to £200.3m. The City had been expecting a figure closer to £206.4m.

Many analysts are concerned that the bank may have to work harder to maintain levels of mortgage lending business and that higher money market rates will increase the cost of raising money for lending.

But the bank‘s chief executive said he remained 'comfortable' with analyst estimates of £429m profits for the full year as long as the Bank of England base rate did not rise too far.

Northern Rock's first-half interest margin, which measures lending profitability, narrowed to 0.85% from 1.0% a year ago.

There was good news for investors, however, in the shape of a 13.5% rise in the half-time payout to 8.5p a share. Earnings per share were up 11.7% to 34.4p in the first half of the year.

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