Chief executive Adam Applegarth says Northern Rock's strong lending performance has continued in the second half of the year, with all three lending arms - secured residential, secured commercial and personal unsecured - performing in line with expectations.
Loans secured on residential property represent 90% of total lending.
Apprlegarth says: ‘As the mortgage market remains strong and as our retention performance continues to gain strength, we can achieve our targeted growth with only modest increases in gross residential market share.’
The total pipeline of new business at the end of September was £6.5bn, an increase of 18% since the end of June. The residential pipeline carried into the final quarter is £6bn, 21% higher than at the end of the first half of this year.
Growth in secured commercial lending remains ‘modest’ in the light of market conditions.
Arrears on all three types of borrowing show no sign of deterioration and the impairment charge for the second half is set to be lower than in the first, when there was a small increase.
Today’s statement says the UK economy remains healthy with stable GDP growth and historically low levels of unemployment. Despite the interest rate rise announced by the Bank of England in August, affordability remains good for mortgage borrowers who are in employment.
Applegarth adds: ‘We expect this relatively benign economic background to continue, providing strong support for the UK mortgage market.
‘House price inflation, excluding the rises seen in Central London, has generally slowed closer towards the rate of wage inflation, and housing transactions this year have risen from the levels seen in 2005, as first time buyers drift back into the market.’
This background has led to an increase in mortgage lending for house purchases during 2006 for the industry as a whole.
Rock says demand for remortgages also remains strong as borrowers increasingly switch products when their current deal expires.
A planned partnership with Lehman Brothers to offer mortgages to higher risk borrowers should be fully operational early next year. The credit risk on these loans will not be borne by Northern Rock, which will merely earn fees for introducing bowers.
Northern Rock shares opened hardly changed at 1167p this morning and are up about 50% over the past 12 months.
Applegarth says he is comfortable with the average profit forecast of £357m for the full year, which would represent growth of 15.9%. The analysts’ range of underlying profit forecasts is from £339m to £363m
Dividend growth will continue to be in line with profit growth Applegarth says.
