Bradford & Bingley, the mortgage lender that specialises in the buy to let market, is on course to meet City expectations of £297.5 million in profits before tax and exceptional this year, although it highlighted the “subdued” levels of new business this year.
In its pre-close trading statement delivered ahead of interim results in August, Bradford & Bingley warned that mortgage arrears among borrowers have shown a “moderate increase” but added that the level of that increase was now slowing. It said its provisions for loans losses remain low.
The group, which has refocused itself to concentrate on new mortgages and sales at branch level, said its pipeline of prospective new loans was building up again and that the credit quality of its existing secured mortgage book remained strong.
Steven Crawshaw, the group chief executive, said: “Against a backdrop of subdued new business levels across the mortgage market, specialist lending has continued to perform. Arrears levels remain low, despite a moderate increase, demonstrating our existing secured book’s strong credit characteristics.
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“New business volumes have grown steadily month on month from a low base as the fundamentals supporting the credit quality and growth of the mortgage market remain strong.”
But the shares fell 8p, or more than 2 per cent, to 326.75p as the market fretted that the mortgage lender was showing limited signs of growth.
James Hutson and Mark Thomas, bank analysts at Keefe, Bruyette & Woods, downgraded their recommendation on Bradford & Bingley pointing to a strong recent run in the lender’s shares.
“As our readers will know, we have been long-term bulls of the buy-to-let market. However, recent outpeformance has placed Bradford & Bingley within 10 per cent of our target price, and we now move our recommendation from outperform to market perform,” they said.
Mr Hutson and Mr Thomas also downgraded Bradford & Bingley’s buy-to-let rival Paragon.
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Mr Crawshaw, who took charge of Bradford & Bingley last year, has refocused the group by selling its estate agency
business and Charcol, its loss-making mortgage broker.
Some investors are nervous because the performance of Bradford & Bingley will be closely linked with the overall health of the housing market. They fear that if the expected downturn in property prices and consumer confidence takes hold, Bradford & Bingley could see a fall-off in lending volumes or face a signficant rise in arrears.
But Bradford & Bingley said today: “We have consciously held our credit criteria and kept our focus on quality at this point in the credit cycle, rather than chase volume in a subdued market in the early part of the year.”