The decline in mortgage lending fuelled by the property market slowdown is to reach 11 per cent, two points more than had been expected, Northern Rock has said.

The bank, warning of a "continued slowdown in the housing and mortgage markets", cut its forecast for gross mortgage lending this year to £260 billion. Last year, home loans totalled £291 million.

In January, Northern Rock said that lending would fall by a maximum of 9 per cent over the next two years.

Net lending – a figure including mortgage redemptions – would be "more muted, given the slowing of the housing market", the bank added.

The downturn was blamed on rising interest rates which were "having an impact on slowing growth in consumer demand", Northern Rock said. Its statement follows a series of downbeat reports from retailers. "This in turn has resulted in a slowdown in the housing market both in terms of activity levels and house price inflation."

The bank noted a fall in unsecured lending, amid a focus on higher quality borrowers.

However, Northern Rock said that it had achieved a 6 per cent rise in its own mortgage pipeline, to £4.5 billion, for which the bank relies for 90 per cent of lending. The market overall had shrunk by 17 per cent.

"This means Northern Rock is continuing the strong gross market share performance seen in the second half of 2004," the statement said.

The bank was on track to meet loan and profits targets with "no early warning signs" of a rise in arrears.

The statement received a mixed welcome from analysts with said James Hamilton, the WestLB analyst, restating a "buy" rating on Northern Rock shares.

"This early in the year to say they are confident with 10
per cent growth in profits means they must be very confident," he said.

However, Michael Level, at CSFB, said: "The market has got used to perpetual upside with Northern Rock but we think it may struggle to meet the consensus forecast.

"We are cautious given the inevitable slowdown in the
housing market.”

Northern Rock shares stood 9p lower at 789p in afternoon trade.

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