Northern Rock lending at record £7.8bn
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Your support makes all the difference.Northern Rock, the Newcastle-based mortgage bank, yesterday unveiled record lending of £7.8bn in the first half, driven by buoyant numbers of remortgage customers.
The bank predicts the housing market will slow this year, but says low interest rates and the ending of redemption penalties would continue to breathe life into the mortgage market.
Northern Rock posted a 22 per cent rise in pre-tax profit to £186.2m in the six months to 30 June, and said its share of the new mortgage market is now 9.3 per cent, roughly twice its stake in existing mortgages. With lending rates falling to reflect cuts in the base rate, and a move towards stripping out extra costs to customers such as early redemption penalties, UK lenders have seen their margins come under considerable pressure. Northern Rock, whose cost-income ratio is just over 30 per cent, said it could cope with the pressure because it is the leanest bank in Europe.
Adam Applegarth, the chief executive, said: "Because of our low costs we can make a return on equity on new loans, which means we can offer them to existing customers."
The bank said it had diverted 300 staff to the task of retaining customers. Currently it is keeping hold of 60 per cent of remortgage customers and 50 per cent of those currently with a Northern Rock mortgage who move home. Mr Applegarth predicted Northern Rock would hit a glass ceiling of retaining 70 per cent of both groups.
With most analysts and lenders predicting a slowdown in people moving home as house prices rise, remortgage customers will become increasingly important for banks.
Northern Rock's costs were up 17 per cent in the first half. The rise was inside its target of not more than a half to two-thirds of its asset growth - which rose 35 per cent. But Mr Applegarth said he expected the figure for the year to be lower, after the previous six months included a number of one-off expenses such as integrating Legal & General's bank plus increased contributions to its pension fund. Northern Rock shares fell 16.5p to 680.5p.
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