Housing market on the up as Northern Rock mortgage applications soar

Apr 24 2009 by Sam Wood, The Journal

THERE was a double dose of good news for the North East economy yesterday.

Newcastle-based bank Northern Rock revealed mortgage applications have soared by around 70% between February and March, under its plans to boost lending.

And North East housebuilder Persimmon announced that it had sold more homes in the first quarter of this year than it in the same period last year.

Northern Rock said it had attracted more borrowers with better deals as it puts into action its programme to increase mortgage lending by up to £14bn over the next two years – including up to £5bn this year.

The bank, which was brought into public ownership early last year, is reversing plans to shrink its mortgage book, which means it has also put back the timetable for paying back cash owed to the Government.

Gary Hoffman, Northern Rock Chief Executive, said: "The economic environment remains difficult but our trading performance in the quarter was in line with our expectations and we saw some early signs of mortgage applications increasing in March, reflecting pricing adjustments to our current product range. At Northern Rock we remain committed to working with all our customers and to assist those who may be under pressure financially, providing the best possible support we can in all circumstances."

The outstanding amount owed to the Government stood at £9.8bn last month – down from an initial £26.9bn debt – although this had risen from £8.9bn at the end of last year as it "significantly" slowed mortgage redemptions.

Meanwhile Persimmon said the upturn in housing sales had beaten its expectations and came despite the fact it had reduced the number of available sites by 16%.

But the firm said that while the sales volume figures were up, its pricing and margins remained "under pressure".

And a spokesman said it would remain cautious about the outlook for the rest of 2009. It said it currently has around 6,500 homes reserved, contracted or completed, which translates to total sales revenue of approximately £960m.

Persimmon has seen its shares recover from their lows late last year – they have doubled in price since December.

But they are still trading at less than half of their peak value last January. The severe downturn in the housing market last year led Persimmon to focus on keeping costs to a minimum and conserving cash.

It maintained its three operating brands of Persimmon, Charles Church and Westbury Partnerships, but reduced staffing levels to around 2,300 after cutting its number of operational and administrative staff by 55% since early 2008. A Persimmon spokesman said: "Whilst the recent improvement in market conditions is encouraging, we will remain cautious about the outlook until mortgage availability improves further and employment prospects become less uncertain."