The lender confirmed that it expected losses of up to £200 million for the year, as a result of swap rate and LIBOR increases. In a statement, Northern Rock admitted it expected to fall 2 per cent short of its annual targets.
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Commenting on the announcement, Adam J Applegarth, chief executive at Northern Rock, said:
“The UK mortgage market remains robust and we are continuing to trade strongly, despite an adverse rate environment.
Receipt of our IRB waiver under Basel II will mean that the next stage of our strategic development can start.
“We will continue to concentrate on adding high volumes of prime quality residential mortgages to our balance sheet. In addition, looking forward we will add revenue from the growing programme of manufacture, distribution and disposal of assets that we do not want to hold on the balance sheet in the long term.”
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Alex Hammond, PR manager at Kensington, said: “To narrow the blame to interest rates alone is inaccurate. It is a variety of things. Firstly, increased competition, especially in the specialist market. In 2005, there were 24 specialist lenders; this year there are 54. This is driving down margins, though interest rates do have a part to play. Kensington has also seen swap rates increase quite dramatically recently, to about 0.5 per cent above Base Rate. We might see lenders having to reprice products because of this, as how and when lenders buy money is an issue.”
