Buoyant HBOS reigns back on mortgage lending policy

HBOS, Britain's largest mortgage provider, yesterday struck a cautious note about the health of the housing market, saying it had cut back on lending and tightened its criteria last year.

While HBOS was one of the most aggressive chasers of new business in savings, current accounts and investments in 2003, it held back on mortgages, taking slightly less than its 23 per cent share of "stock" - all mortgage lending currently in the market.

James Crosby, the chief executive of HBOS, said the bank had also shaved the ratio measuring the loan compared to the value of the property from 63 per cent to 61 per cent. HBOS would also undershoot its share of stock this year, Mr Crosby added. He stressed, however, that he did not envisage Britain's housing market, which grew 15 per cent last year, crashing to a halt. "Our net lending is still twice our nearest competitor's. This is fine tuning, and it lies at the heart of being prudent bankers," he said.

HBOS joined the growing number of banks to report record results, with pre-tax profits climbing 29 per cent to £3.77bn in the 12 months to 31 December.

HBOS, whose Halifax roots were as a building society, which gave shares to policyholders when it demutualised, was quick to reject accusations of profiteering. Mr Crosby said: "We have the largest shareholder base in the UK. Between them they will have received £300m in dividends last year."

The bank - which dubbed itself the "fifth force" in banking, able to take on the massive market shares held by the Big Four - said its strategy of launching competitively-priced products in order to grab market share was paying off.

Its share of the business banking market has doubled in two years and last year it attracted a quarter of customers opening current accounts for the first time or switching from other providers.

"Some of our competitors are inclined to the view that the UK is the banking equivalent of Jurassic Park, and that there is no growth. We are not even close to that view - we see lots of opportunities to carry on eating their lunch," Mr Crosby said.

HBOS's rapid growth has been at the expense of holding up its profits margin. It fell from 1.83 per cent to 1.77 per cent and is likely to drop again this year. HBOS's shares, which have risen sharply in the past few weeks, closed down 7 at 757p.

Mr Crosby last year laid down the gauntlet to insurers, saying he wanted HBOS to become the biggest provider of life and pensions products. Yesterday he said he thought the bank was running "neck and neck" with Aviva, Britain's largest insurer, which operates under the Norwich Union brand and which also reported yesterday.