The bank made its comments as it unveiled a 22% rise in half-year profits to �186.2m ($298m).

The housing market was expected to cool further, Northern Rock said, with price rises set to slow to about the growth in average earnings over the next year.

But it said the market remained in "reasonable condition" and would stay underpinned by low interest rates and low unemployment.

Lower fees

Northern Rock said its gross lending over the first six months of the year hit a record �7.8bn, a rise of 34.4% on the same period last year.

The period saw a "significant" increase in the level of re-mortgaging activity as homeowners took advantage of low interest rates and climbing property prices.

The bank predicted that demand for re-mortgaging would remain buoyant particularly due to a drop in the number of redemption charges that mortgage holders have faced in recent years.

The reduction in these fees cuts the cost to the mortgage holder of changing products or lenders.