HBOS scraps annual mortgage targets

HBOS scrapped its annual targets for mortgage lending yesterday as Britain's biggest mortgage lender warned of a slowdown in the market for home loans.

HBOS, which owns the Halifax brand, has targeted 15 to 20 per cent of net mortgage lending since 2004. But Andy Hornby, HBOS's chief executive, said the home loans market was going through a major repricing that would reduce demand and that it was not sensible to chase market share.

"We will no longer set annual market share targets for net lending. Instead, we will make judgements on the trade-off between volume and margins on a month-by-month basis," Mr Hornby said. "Increased mortgage costs to consumers will inevitably lead to a slowdown in the mortgage market."

HBOS's share of new mortgage lending plunged to 8 per cent in the first half of this year from 21 per cent a year earlier after it tried to bring offers for new customers into line with prices for existing borrowers. The botched strategy helped prompt the departure in August of Benny Higgins, the head of retail banking, who had joined in 2006 from the rival Royal Bank of Scotland.

"To be clear, I was not 100 per cent content with the performance of our mortgage business in the first quarter of this year," Mr Hornby said. "However, we are back on track and I still believe we were right to step back from chasing volume in the first half of 2007."

Mr Hornby sought to reassure investors about HBOS's funding after the Northern Rock crisis focused attention on banks financing lending in short-term money markets. He said only 16 per cent of HBOS's term funding matures in one month compared with about 40 per cent five years ago.

He said HBOS had not foreseen the severity of the liquidity squeeze but that the bank's lending had been cautious for two years and it was in good shape to cope with new market conditions.

In corporate banking, Mr Hornby said the bank had not reduced its covenants on any lending and that HBOS was not saddled with leveraged loans it could not syndicate. He added that as competition to lend reduces and margins increase there would be scope for HBOS to increase corporate lending.

The Bank of England's first report on credit markets last week showed banks tightening corporate lending and increasing prices after the credit crunch put an end to the recent period of easy lending.