Bradford & Bingley sees upturn in buy-to-let market

Bradford & Bingley, the specialist mortgage lender, reported a 6 per cent increase in profits yesterday after a rebound in the buy-to-let mortgage market in the second quarter.

The former building society, which controls about 20 per cent of the UK's buy-to-let market, said pre-tax profits rose to £147.9m for the first six months of the year, from £139.4m in the year-earlier period. Underlying profits - adjusted for the sale of units last year - rose 8 per cent to £150m. B&B has reorganised itself to focus on specialist mortgage lending and sold its wealth management division and real-estate arms.

Stephen Crawshaw, the chief executive, said: "While the outlook in the first quarter was uncertain ... people are much more confident about the second half. I think we have seen the trough."

He defended B&B's focus on lending to landlords who rent out property, saying buy-to-let still showed greater growth than the mainstream mortgage market. While acknowledging that the strategy had led to an increase in mortgage arrears (which rose at a faster rate than in the traditional market), he said: "The margins are infinitely superior to those in the mainstream mortgage market."

The specialist lending book grew by 5 per cent in the three months to June, outstripping growth in the mainstream mortgage market. However, B&B's bad debt charge rose to £1.9m in the first half. Arrears rose to 1 per cent of loans, compared with 0.77 per cent in the second half of last year.

Gross new lending fell sharply to £2.5bn in the period, though the bank said that was from a record high of £4.1bn last year. Underlying income was broadly flat at £281m, but profits were helped by a 6 per cent drop in underlying costs.

James Invine, at Merrill Lynch, said: "The main reason for lower-than-expected income was that loans have only grown 1.4 per cent since the end of the year, and slowing volumes is an issue flagged by management."

B&B accelerated its cost-cutting programme and expects to cut £40m of costs in the current financial year, rather than the next.

Some analysts were sceptical about the company's outlook for the buy-to-let market. James Hamilton, at WestLB, said: "It's only a matter of time before the volume growth in buy-to-let disappears." Investors appeared to agree with him, driving the shares down 12p, or 3.6 per cent, to 325.75p.