BUILDING Society turned bank Northern Rock has reported bumper half-year profits as lower interest rates boosted demand for mortgages.

Northern Rock, which demutalised in 1997, said its residential lending market had been "buoyant" during the first half of the year.

The Gosforth-based bank, currently building a £45m extension at its headquarters, said the mortgage market had been helped by falling interest rates, house price inflation and robust consumer confidence.

It said that other personal finance products, such as ISAs, current accounts and unsecured personal loans, also benefited from the buoyant market.

Gross lending during the six months to June 30 jumped 28.2 per cent to £4bn, helping push total income up from £199.8m 12 months ago to £231m.

Pre-tax profits rose to £139.6m, a 14.1 per cent increase compared to the same period last year.

The group said its decision to increase its funding methods had helped boost the figures, as it increased the amount of money the bank had available to lend.

Chief operating officer David Baker said the group would now focus on expansion through organic growth.

Although Northern does not want to increase the number of its branches, it does intend to continue growing the group as a whole.

Mr Baker said: "The results for the first half of 2001 provide further confirmation that Northern Rock's strategy for growth remains firmly on track.

"All our lending portfolios grew in accordance with our plans, returns remain stable and asset quality remains good."

Mr Baker said the goal was to increase its share of the total mortgage market - currently at 3.5 per cent - to five per cent by 2005 through organic expansion. It already has a seven per cent share of the new mortgage market, a figure that is currently doubling year-on-year.

He said: "There is a great deal of competition in the mortgage market and it is there to stay. However, our innovative products help to put us ahead of the competition. I think that the market will remain fairly buoyant, certainly for the remainder of the year."

Northern Rock donates five per cent of its pre-tax profits to the Northern Rock Foundation which supports community and charitable causes in the North-East. As a result of the first half pre-tax profits the foundation will receive a donation of £7m, a rise of £900,000 on the same time last year.

Shareholders will receive an interim dividend of 5.7p per share, payable on October 31