Despite the cautious outlook, Halifax executives saw some bright spots. Jon Foulds, chairman, said there had been a 'little spring fever' in the market and even talk of a shortage of houses for sale.
Jim Birrell, the chief executive who is retiring in the summer, said mortgage applications were now running at 1,300-1,400 a day compared with a low of 500-600 in September.
Halifax raised pre-tax profits by 8 per cent to pounds 680m in the year to 31 January, despite net lending falling by 16 per cent to pounds 3.3bn. Market share rose from 14 to 18 per cent and mortgage balances increased from pounds 48.6bn to pounds 51.8bn.
Provisions for bad debts increased from pounds 326m to pounds 449m, with 22,486 mortgages having payments a year or more in arrears at the year-end. But the number of properties taken into repossession during the year halved.
The results were described as brilliant by John Wriglesworth, housing analyst at UBS Phillips & Drew.
'I think the Halifax has a right to be smug. The cost-income ratio (now 40 per cent) has come down five years in a row. It is significant that they can enhance their profits and their strength,' Mr Wriglesworth said.
The wider difficulties affecting the market put pressure on the society's estate agency chain, where operating losses rose from pounds 6.6m to pounds 14.8m in a year when house moves declined by 14 per cent.
In the summer months before the stamp duty holiday came to an end, the business moved into profit. 'This shows the potential of this business in any more normal year in the housing market,' Mr Foulds said.
He said Halifax was not going to turn its back on the estate agency business, even though Abbey National, among others, recently decided to leave the business.
While Halifax welcomed the Budget move to exempt house purchases under pounds 60,000 from stamp duty, Mr Birrell said he was disappointed that mortgage tax relief would be restricted to 20 per cent in a year's time.
'It was a waste of an opportunity. We would have liked to have seen it redirected towards first-time buyers. It would have helped the housing market. We hope it will now stabilise at 20 per cent and we are not on a sliding scale.'
Halifax does not expect any further cuts in interest rates. 'We prefer a stable pattern rather than short-term reductions which will have to be reversed in a year,' said Mr Birrell, who is being replaced by Mike Blackburn of Leeds Permanent.
But if there was a further cut, he said the society would first consider savers before cutting mortgage rates. During the year total assets increased by 7 per cent to pounds 62.8bn, mainly funded by a pounds 2.9bn increase in retail funds.
'We do not want the rapid fall in interest rates over the past several months to lead to a major switch of funds away from traditional savings, or worse still do serious damage to the savings ethic,' Mr Foulds said.
Halifax's two unit trusts now have pounds 130m under managment, and 4 per cent of the unit trust personal equity plan market.
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