More bankruptcies and repossessions took the shine off an otherwise acceptable trading update from the mortgage bank Northern Rock yesterday.
While the arrears among its customers remain below half the industry average, the Newcastle-based bank is writing off more bad debts than before. It will not be setting aside extra cash to cover this, however, because earlier provisions are yet to be used.
Steeper utility bills and taxes are leaving more borrowers struggling to meet mortgage payments that have swelled over the past couple of years.
Michael Helsby, a banking analyst at Fox-Pitt, Kelton, said: "This new commentary might be seen as the first sign of the long-awaited deterioration in asset quality at Northern Rock and we cannot imagine it will be taken positively when people spot it."
That, and profit-taking, saw Northern Rock shares ease 8p to 1,176p. They have soared almost 50 per cent over the past 12 months.
This year has started strongly, with first-time buyers returning to a housing market that Northern Rock forecast would be worth a record £300bn in 2005. Banks are on track to generate higher profits than ever, it said, having made more than £35bn between them last year.
Adam Applegarth, the bank's chief executive, said: "We have started 2006 strongly, with lending performance and pipeline ahead of the good numbers of the comparable period last year, and entirely in keeping with our expectation of being in the top half of the asset-growth target range."
He is confident that City targets for pre-tax profits of between £339m and £361m will be met this year. The lender is on course to grow its assets by a fifth in 2006 and profits attributable to shareholders by 15 per cent.
Rock's net lending jumped by 26 per cent in the first three months of this year, after it held on to more customers. Remortgages will probably account for almost half of all home loans in 2006, as home owners continue to reorganise their finances.
The value of mortgages yet to be completed stood at £5.7bn, 15 per cent higher than last year. In January, it emerged that Northern Rock had overtaken Barclays to become the country's sixth-biggest mortgage lender. The former building society unveiled annual pre-tax profits of £504.6m, 14 per cent higher than in 2004. The Newcastle-based bank was responsible for 8.1 per cent of the UK's gross lending, up from 6.8 per cent a year earlier.
In 1997, it had looked the least attractive of the slew of building societies to demutualise and head to the stock market. Rock was also the runt of the litter, chasing hard on the heels of Alliance & Leicester, Woolwich and the market-leading Halifax.
But under Mr Applegarth it won market share from rivals, while low unemployment and souped-up credit-checking systems helped keep bad debts under control.Reuse content