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Northern Rock: innovative offerings keep it one step ahead

28th July 2005
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Northern Rock's interim results have revealed strong growth in its mortgage lending operations.

Northern Rock has achieved strong mortgage lending growth in the first six months of 2005 despite a subdued housing market. This is largely thanks to the continued success of its 'Together' mortgage and competitive headline rates. However, unsecured lending has proven a more tricky area, and, as more and more of its rivals look to innovative products, Northern Rock has no time to be complacent.

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Northern Rock's interim results show that gross residential lending for the first six months of the year has increased by 20.1% on the same period last year to GBP10,224 million.

What makes its results particularly impressive is that the bank has continued to rapidly grow its mortgage business despite a visible slowdown in the UK mortgage market in the first half of 2005.

Equally impressive is the fact that Northern Rock has achieved these results without sacrificing credit quality. Indeed the number of mortgages over three months in arrears on the bank's book has actually declined to just 0.35%, less than half the industry average.

Much of the bank's success can be attributed to its highly price-competitive products, its exceptionally low cost base and its innovative range of mortgage products. A good example of this is the 'Together' mortgage, which links an unsecured credit line to the mortgage, allowing a customer to borrow on an unsecured basis at their mortgage interest rate.

However, while the bank continues to demonstrate considerable prowess in the residential mortgage market, its unsecured lending portfolio declined slightly in 2005, in line with slower growth in the market as a whole. This probably also reflects a tightening of the bank's credit acceptance criteria in response to a more uncertain and higher-risk lending environment - something a number of its larger high street competitors are also being forced to do in light of rising bad debt levels.

Furthermore, although the company has managed to stay afloat in the troubled waters of the UK mortgage market so far, this could become more and more difficult as the market becomes increasingly saturated. The 'Together' offering is a good start but, with others jumping onto the innovation bandwagon, Northern Rock will need to stay on top of its game to remain ahead of the market.
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