Buy-to-let revival boosts Bradford & Bingley

Bradford & Bingley, the UK's ninth-largest bank, said it had seen a strong resurgence in the buy-to-let market, achieving its highest-ever levels of gross lending to residential property investors during the second half of 2005.

Although the level of arrears among residential property investors doubled to more than 1 per cent over the year, Steven Crawshaw, the bank's chief executive, said yesterday this compared very favourably with the low point of other property cycles. "Although the fact that arrears have doubled looks quite exciting, these are still very smallnumbers," he said. "And we see buy-to-let arrears having hit their peak."

He added that during previous troughs in the housing cycle, arrears levels had climbed to 4 per cent. Arrears in the regular residential lending market increased more than 50 per cent over the year, to almost 1.2 per cent. However, Mr Crawshaw said he believed arrears levels in this market were also near their peak.

"Back-to-back house price scare stories have lost their credibility," he said. "The housing market is in good shape."

James Leal, an analyst at Teather & Greenwood, said he agreed that the buy-to-let market looked in good shape, adding that his sell recommendation on Bradford &Bingley stock was only on the back of his belief that the company is overvalued.

Reporting its preliminary results for 2005, the bank unveiled an 11 per cent increase in underlying pre-tax profits to £310.1m - ahead of the market consensus of about £305m.

Mr Crawshaw said the strong results were driven by a successful cut in costs across the business, as well as a growing momentum in the property market in the second half of 2005. He said he expected the UK lending market to grow about 5 per cent in 2006 to push through £300bn.

The bank said it planned to increase its full-year dividend by 7 per cent, compared with a rise of just 4 per cent last year, and would also manage to raise its dividend cover to almost two times the group's underlying earnings.

Claims for mis-selling of financial products, such as endowment mortgages and precipice bonds, continued to dog the company's bottom line, forcing the group to increase its reserves for compensation for the year to £38.7m. "The level of complaints from mis-selling of endowment and investment products has considerably exceeded expectations and we have not escaped this trend," it said.

Mr Crawshaw said the bank was likely to continue acquiring mortgage customers as opportunities came available over the coming year, but said it was unlikely to get involved in a major acquisition.

Shares in Bradford & Bingley gained 3 per cent in early trading yesterday, before closing down 1.5p at 448.75p, giving the group a market value of £2.85bn.