Banking group Northern Rock today said demand for mortgages had reached record levels as it posted an 18.6% hike in annual profits.

Expectations of higher interest rates were doing little to slow down borrowing, with applications for loans in January running 20% ahead of last year, the group said.

Continuing low levels of unemployment, a restricted supply of new housing and few options apart from owner-occupation, would offset any slowdown in the housing market in 2004, it added.

Northern Rock, known for its strategy of building strong lending growth from a lean cost base, said net lending rose 27.1% to £8.5 billion in the year to December 31.

This did not signal an expansion in high risk loans, with the proportion of lending to first-time buyers lowered to 23% from a level of 26% in 2002, the group said.

Full story tomorrow in The Northern Echo.