The buoyant UK housing market has helped mortgage bank Northern Rock to unveil an 18% rise in full-year profits.

The housing market is set to be quieter in 2003 Adam Applegarth, Northern Rock chief executive

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Kicking off the bank reporting season, Northern Rock posted pre-tax profits of �326.2m ($534m), up from �276.5m a year ago.

The figure was at the top-end of analysts' forecasts, and the bank said its business remained strong despite some signs of cooling house prices.

But Northern Rock said it did not expect to see a sharp reduction in values, and forecast house price inflation of about 5% by the end of this year.

Housing market resilience

Recent house price surveys have suggested that the property market is beginning to cool, with prices falling in some parts of London.

But Northern Rock said economic conditions meant a housing crash was unlikely.

"The housing market is set to be quieter in 2003," said chief executive Adam Applegarth.

"The economic fundamentals of low interest rates, low inflation, low unemployment and a very limited increase in the supply of new housing stock will continue to underpin the market."

Low interest rates helped push net lending to �8.24bn, a 60.7% rise on the previous year.

Of this, residential lending accounted for �7.18bn, an 88.2% increase, as low interest rates continued to fuel the housing boom.

The bank added that mortgage arrears by its customers remained less than half the industry average.

Shares in Northern Rock rose 10 pence to 578p on the London stock market on Wednesday.

"Northern Rock is doing everything right, but the market just isn't interested in equities at the moment," said BWD Rensburg fund manager Colin Morton.

Repossessions fall

The underlying strength of the UK's housing market was shown by the latest repossession figures from the Council of Mortgage Lenders (CML).

They showed that the number of homes repossessed last year was the lowest for 20 years.

Only 11,970 properties were taken back in 2002, compared with 68,540 in 1992 at the worst point of the 1990s house price crash.

The number of people in arrears also hit a new low, with 50,510 more than six months behind on repayments compared with 352,050 in 1992.