BRADFORD & BINGLEY, the mortgage banking specialist which provides a quarter of all buy-to-let loans in the UK, said it saw further softening of the UK housing market.
But it added that the growing effect that five interest rate rises over the past year would have on the market would not prevent it posting a full-year profit near the top end of City expectations next February.
That was because the bank, Britain
’s smallest by market value, had managed to cut costs while at the same time increasing lending.
In a trading update, chief executive Steven Crawshaw said: "We had a better performance than analysts were expecting in the lending business and general acceleration of cost cutting across the group."
Analysts’ consensus forecast is for unchanged annual pre-tax profit of £263 million, within a range of £249m to £279m, Mr Crawshaw said.
However, that does not include a charge of about £140m for goodwill write-offs and other costs from disposals.
Despite new lending slowing in the second half as the housing market cooled, B&B insisted mortgage balances would show strong growth this year.
The 153-year-old former building society became a public company in 2000 and tried to diversify into financial broking. However, a sales slump in 2003 caused profit to fall that year and the bank was ejected from the FTSE-100 index of top UK companies in September.
Under Mr Crawshaw’s stewardship, B&B has concentrated on mortgages and trying to boost profit through branches. It put its Charcol mortgage broker business up for sale, along with other aspects of its estate agency operations, including Scottish chain Slater Hogg & Howison.
In June, B&B also announced it was cutting 600 jobs at its core business - about 15 per cent of the workforce - as part of its drive to reduce costs by £40m.
According to Mr Crawshaw, B&B is now a simpler business after a "torrid summer" of job cuts and disposals. Units have been sold more quickly than expected, allowing it to cut costs faster, Mr Crawshaw said. Costs will be reduced by £35m by the end of 2005, accounting for most of the planned £40m reduction by the end of 2006, he added.
B&B said it could continue to grow despite a slowdown in Britain’s once booming housing market and a predicted dip in business early next year as financial brokers grapple with new rules on insurance sales.
"It will definitely be a smaller market next year, but it will be one where growth is enough for us to deliver our desired levels of growth," Mr Crawshaw said. Mortgage sales have revived after a dip when new rules started in October, and there will be a similar trend when insurance rules start in January, he said.
B&B forecast that the housing market would move into a period of consolidation, which it welcomed.
Mortgage affordability remained good and it did not expect to see any "material decline" in arrears in the near-term.
"We believe that the housing market will move into a period of consolidation with reduced house price inflation and transaction volumes.
"We currently forecast house price inflation will be around two per cent in 2005."
The forecast was in line with a statement by Nationwide building society earlier this week but was far more optimistic than other surveys, including Barclays, which recently warned householders to expect an eight per cent drop in property prices next year.
