The bank also announced plans to expand its Internet and phone operations by taking on another 400 staff in the North-east of England and open a savings operation in Ireland.
Adam Applegarth, an executive director of the bank, said that the changes are in response to the shift in demand from customers away from the traditional branch towards post, telephone and the Internet.
"The way customers want to do business is changing. Over 60 per cent of our mortgage applications start with a telephone call to our mortgage direct operation. Ten years ago that would not be the case. We are closing the branches because people are simply not using them," he said.
He added that the share buyback, the first by Northern Rock, reflects a desire to move to a more efficient capital structure. The group had its first successful mortgage-backed securitisation issue worth pounds 600m in October and plans a further tranche of mortgage backed bonds next year.
Further details of the buyback will be announced at the time of the 1999 results on 26 January next year. The bank also announced that it is in advanced negotiations about the sale of its interest in Regency Care Homes to NHP. "This is not a change of strategy it is how to enhance the strategy we have already articulated," Mr Applegarth said. "Being small is not always and advantage but at least in this case we have been able to move quickly in response to changes in the marketplace."
Yesterday's announcements were warmly welcomed in the City. Northern Rock has fallen badly out of favour because of concern about the impact of new competitors on its core business.
The bank said yesterday that the second half of the year was going well. The outflow of savings that reached pounds 400m in the first half had slowed since Egg, the Prudential's direct banking arm, went internet only, and mortgage applications are running at 85 per cent of the levels of the second half of last year.