Mortgage specialist Bradford & Bingley was upbeat about the buy-to-let market as its annual profits hit the top end of expectations, but the bank's shares fell as investors continued to fret over weakening demand for home loans.
Although B&B said the growth in its most important sector was moderating - it is the biggest UK lender to people renting out property - the market continued to grow "considerably" faster than the wider mortgage market.
The comments came as the company, based in Bingley, West Yorkshire, yesterday revealed pre-tax profits before exceptionals rose by six per cent to £280.2 million in the year to December 31, above the £274.1 million pencilled in by analysts.
Recent data from the Council of Mortgage Lenders showed the number of people buying properties to rent out fell by 18 per cent in the second half of last year, compared with the first half.
B&B said that buy-to-let had become an important UK sector, now accounting for six per cent of outstanding mortgage balances. The company has a 22 per cent share of this market.
Growth in the wider housing market was slowing from the "unusually" high rates seen in the last few years, it continued. However, B&B said it was not surprised by the drop from what it called " unsustainable levels."
The firm said a continued strong performance by its key lending and high street businesses drove its growth during a transitional year in which it disposed of non- core operations.
It sold five businesses, including its loss-making Charcol mortgage-broking business. This contributed to bottom line profits falling to £ 105 . 3 million from £264 million. B&B said this restructuring was now complete.
Looking ahead, it said it expected good growth and attractive margins to continue in its chosen lending markets.
The total dividend was raised by four per cent to 17.1p.
However, shares fell four per cent after the announcement, down 13.75p to 327p.
Bradford & Bingley's fortunes are tied to the UK's slowing housing market because it specialises in higher-margin mortgages for the self-employed and people renting out property. It has about one quarter of buy-to-let lending, and some investors are concerned the market could dry up or cause bad debts to surge. Commenting on Bradford & Bingley's performance, James Hamilton, from analysts WestLB, said he had cut his rating for the firm to "sell" from "neutral".