B&B sees house price growth down to single digits

Bradford & Bingley has warned of a significant slowdown in the housing market next year, believing property prices will see only single-digit growth, compared with the 30 per cent boom in prices this year.

Christopher Rodrigues, chief executive of B&B, said the growth levels were unsustainable and buyers had been guilty of "irrational exuberance", given the slowing economy. "We know the housing market is already slowing," said Mr Rodrigues. "That is a fact, particularly in London and the South-east. Consumers are being sensible. They are looking at locations and being more discerning over what they are prepared to buy. This is good for the market as it will stop it overheating."

He said interest rates would stay low to reflect the stalling economy, but that this would underpin the housing and mortgage markets, and help keep mortgage arrears low.

Mr Rodrigues said B&B was well placed to survive a downturn in the housing market as it had a diversified lending strategy, spread between buy-to-let loans, commercial loans and lending to housing associations. He said its mortgage arrears were continuing to decline and the credit quality of its lending was high.

This year's property price boom has meant B&B is well ahead of its profit expectations for the full year, despite it having to take a £10m write-down in closing a joint venture that designs and sells mortgage systems. Forecasts have put B&B's 2002 profits at an estimated £265m, against a pre-tax profit of £234m last year.

The company has seen an increase in lending of £1bn since June and its lending book now exceeds £20bn, helped by the acquisition of £650m of loans from General Motors.

But B&B's joint venture with Alltel for mortgage outsourcing came to end yesterday, at a £10m hit to the group. Mr Rodrigues said he could no longer justify continuing to invest in the business.

He said the group's mortgage broking business, Charcol, and its independent financial advice arm, The Marketplace, were also adding to profit growth.

The company has now completed more than £86m of the £150m share buy-back programme it started in February.

Shares in B&B closed down 1.75 per cent at 280p yesterday, as fears that the slowdown in the housing market would lead to lower revenues. It has been one of the best performing banking stocks this year. Investors have seen the business – which has stuck to retail banking – as a safe haven buy.