Bradford & Bingley defends surge in buy-to-let mortgages

Rodrigues says risks lower despite worries that boom in rental market will bust

Christopher Rodrigues, the chief executive of the mortgage lender, Bradford & Bingley, hit back yesterday at criticisms of the buy-to-let mortgage market, as he revealed its lending in this sector had more than trebled in the first half of the year.

His defence of the buy-to-let market came a day after Matt Barrett, the chief executive of Barclays, warned that rivals were taking on "suicidal" risks with their lending policies. He said some were rushing in to the buy-to-let market, lending very high amounts to the value of the property on "dizzying" income multiples.

"I am not standing by opinion that the buy-to-let market is not as risky as it is portrayed, I am standing by fact," Mr Rodrigues said, adding that buy-to-let was lower risk than most mainstream lending. "You can see from every monthly set of figures from the Council of Mortgage Lenders that arrears experience is lower in buy-to-let than in owner occupied homes. We are not saying it is risk free or that people can buy any property and make a fortune. You have to be a sensible borrower."

Buy-to-let lending at the company rose from £748m in the first half of 2002 to £2.3bn in the first half of this year. It now accounts for 30 per cent of the group's mortgage book.

Mr Barrett's comments had come as a surprise to the group, particularly as although Barclays has pulled back from some areas of the market, its subsidiary Woolwich is a very significant player in the buy-to-let market itself.

Bradford & Bingley reported a 5.5 per cent increase in pre-tax profits to £132.4m. Mortgage lending had reached record levels in the first half of 2003, with new lending in the first six months of the year totalling £4.6bn, 50 per cent of which was buy-to-let loans.

The maximum loan to value for Bradford & Bingley's buy-to-let loan is 85 per cent and the company was yesterday able to say that its charge for bad debts had halved to £1.2m in the past six months as the credit quality of its book improved. Mr Rodrigues yesterday said arrears had fallen to only 1.18 per cent of its book and only 91 of its 350,000 customers were having their properties repossessed. Across the group, however, general provisioning has increased by 13 per cent to £57.5m to reflect the growing size of the company.

Revenues in its distribution business fell 9 per cent to £119m, due to a decline in its estate agency division. This was down to a dip in the number of house transactions that have taken place, and Bradford & Bingley warned last month that the house market had reached a stand still during the Iraq war.

Mr Rodrigues yesterday said, however, that he was more confident going in to the second half of the year. "Interest rates are down, house prices have moderated, the war is behind us and unemployment remains robust. Importantly for our buy-to-let business, the letting market has remained resilient as first time buyers find house prices moving out of reach," Mr Rodrigues said. The estate agency had also been hit by a fall in margins, as its staff attempted to drive up volumes by slashing their charges.

Problems at the estate agency, however, were to some extent offset by growth in its mortgage broking business. Bradford & Bingley owns Charcol, one of the leading mortgage brokers in the UK. Revenues from mortgage broking grew 31 per cent to £33.6m in the first half of the year.

The former-building society is having to increase other parts of its business to account for the declining number of mortgages still left on its books from before it demutualised. This represents £8bn of what is much higher margin business for the group, and interest earned on the book has declined 27 per cent on the same period last year. Mr Rodrigues said that in order to replace the revenues lost from one paid-up loan, B&B says it must sell two new products. Shares in the group fell 2.25 per cent to close 305p.