NORTHERN Rock is anticipating the housing market will remain buoyant as it forecast a 20 per cent increase in its lending in the first half.

Good employment levels, a housing shortage and relatively low debt servicing costs meant the home-moving market would remain solid, the bank, based in Newcastle, said.

The bank said its lending was continuing at very strong levels, with its three lending sections - residential, commercial secured and personal unsecured - performing well.

Northern Rock said it expected first quarter total net lending, which was 16 per cent above the same period last year, to rise about 20 per cent by the half year against the first half of 2003.

It said lending remained dominated by home loans, with remortgaging continuing to be strong and accounting for about 40 per cent of new residential lending.

Adam Applegarth, chief executive, said the bank was confident of continuing to achieve its targets for growth in assets under management, profits and return on equity.

"We are again set to deliver against our low cost, high quality, high growth strategy," he said.

In a trading update for the first quarter, Northern Rock said rising interest rates and household debt would ensure a strong remortgage market.

Job prospects in the economy remained good, it said.

With unemployment being the main cause of home loan defaults, a good credit performance for traditional mortgages should continue.

The strength of the remortgage and home movers market meant the bank's central gross residential loan market forecast of £250bn for this year may have to be revised upwards, the bank said.

Northern Rock said it was starting the second quarter with agreed business of more than £4.6bn - 20 per cent higher than at the start of the year.

Despite the two recent rises in the base rate to four per cent, the bank said there were no early warning signs of credit deterioration.

Its residential arrears of more than three months remained about half the published industry average.

It said it expected to meet its "two rules" of cost increases remaining less than income growth, and between a half and two-thirds of the rate of growth of assets under management.

The bank said the range of pre-tax profit expectations for this year, provided by 22 analysts, was between £394m and £443m, with a mean average of £430m.

"At this early stage of the year, Northern Rock is comfortable with this consensus mean," it said.