Northern returns to mortgage price war

NORTHERN ROCK returned to the offensive in the mortgage price war yesterday, revealing plans for a combined mortgage and loan that allows customers to borrow more than the value of their property.

Attached to the mortgage will be an unsecured loan at the same rate of interest, the latest in a spate of up-front incentives designed to attract new borrowers. The mortgage bank is already offering borrowers a lump sum "cashback" of 8 per cent of the loan they take out.

The bank is offering the deals as part of renewed efforts to beat off intensive competition from new mortgage players such as Standard Life and Legal & General.

Shares in Northern Rock fell by 6 per cent yesterday when the bank said it lent 52 per cent less in the second half of the year than in the first half.

The share price fell from 528p to 497.5p, valuing the bank at pounds 2.34bn, as the City digested the second-half fall in new mortgage business. Northern Rock had grabbed 10 per cent of the total mortgage market in the first half, but fell back to just 5 per cent in the second period.

The bank said it achieved its aim of a 7 per cent market share over the year and pointed to profits up 10.3 per cent in 1998.

Amidst poor publicity over its treatment of savers this year, which prompted the Office of Fair Trading to investigate, the bank received pounds 901m in new retail deposits, against pounds 1.02bn the year before. Leo Finn, chief executive, said the bank delivered a "strong performance" in uncertain economic conditions.