Northern Rock Tremors

Northern Rock, the fast growing mortgage lender, is rumoured to be on the brink of issuing another profit warning.

The bank, which has only a limited deposit business and borrows from the capital markets to fund its mortgage lending, has already surprised the stock market with a profit warning, in June.

It has since admitted that it is experiencing difficulties in the wholesale borrowing market and that it is relying, in part, on cash in deposit accounts at its branches in the UK, Ireland, Guernsey and Denmark, to meet its commitments.

Northern Rock, which is currently the fifth largest UK mortgage lender, has not contradicted reports of the possibility of a further increase in the cost of its mortgages.

However, it has pointed out that any increase in such costs would be limited by the strong competition in the market.

Recently the cost of wholesale borrowing has been increasing faster than the Bank of England’s base rate.

This is largely because of the destabilisation of the debt markets caused by the crisis sparked by losses in the US sub-prime mortgage market.

In the first-half of 2007, Northern Rock’s share of the UK residential mortgage market increased to 9.7%, as compared with 8.7% in the first-half of 2006.

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