WIR PART ONE

Are the wheels about to come off the decade-long housing boom? Two events this week suggest that the axles are at the very least starting to rattle a bit. One was a profit warning from Northern Rock, hitherto one of the UK's most relentlessly efficient mortgage lenders. The Newcastle-based group said that its margins are being squeezed because it borrows money at rates based on interbank rates, but lends it out to homeowners at rates based on the Bank of England's base rates. Three-month interbank rates are rising, because the markets expect that interest rates will further in the coming months. But Northern Rock is having trouble shifting homeowners onto higher rate products, so its profit growth this year will be shy of analysts' forecasts. Still, this should be a relatively short-term problem, and the bank is at least keeping market share. So we consider the sell-off overdone, and continue to rate Rock's shares a buy.