Northern Rock on a roll as lending rises

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Northern Rock revealed yesterday that underlying pre-tax profits jumped 14.4 per cent to £273.3m in the first half of this year on the back of record lending.

A buoyant housing market, underpinned by a hungry appetite for remortgaging, drove gross lending to £14.8bn, a 28.3 per cent rise on the same time last year.

The Newcastle-based bank's share of a new mortgage market expected to be worth up to £320bn this year was steady at 14.3 per cent, against a historical share of 6.7 per cent.

The company also lifted its most conservative estimates for profits in the next two years. Northern Rock now expects underlying profits to grow by 15 to 20 per cent, against earlier guidance of between 10 and 20 per cent. Northern Rock has vowed to grow its dividend in line with profits growth. Adam Applegarth, the chief executive, is comfortable with forecasts for annual profits this year of about £355m, a 15 per cent improvement on 2005.

David Baker, Northern Rock's deputy chief executive, stressed that the proportion of Northern Rock borrowers in arrears - at least three months behind with repayments - is less than half the industry average.

Simon Maughan, senior analyst at Blue Oak Capital, said: "This a great little company that is over-analysed, largely to arrive at the wrong conclusion: if the mortgage market slows, they are stuffed.

"The major point is that if the mortgage market slows, they will win market share because they are much lower-cost than anyone else. They do it better because it's all they do."

Northern Rock will pay an interim dividend of 10.9p. Its shares rose 81.5p to 1,128p.