Shares in HBOS fell nearly 5 per cent yesterday as Britain’s biggest mortgage lender said that increased competition in buy-to-let and self-certified home loans would hold back profits this year.

HBOS, which has 20 per cent of the mortgage market through Halifax and Bank of Scotland, cited offers of low rates from its rivals as the key factor behind a fall in margins – from 1.84 per cent to 1.78 per cent – in its retail banking operations last year. Andy Hornby, the chief executive, said: “We anticipate some further margin decline in 2007.”

That outlook, together with the warning that revenue growth this year would not match the 10 per cent achieved last year, took the shine off HBOS’s underlying full-year profits, which rose 14 per cent to a record £5.54 billion.

The bank also disclosed that it would miss out on an estimated £60 million of fee income this year after the implementation of lower default and late payment fees on credit cards last August by the Office of Fair Trading (OFT). Mr Hornby used yesterday’s results to affirm HBOS’s commitment to fee-free banking ahead of this month’s report from the OFT on overdraft charges.

BACKGROUND

• HBOS drops £1.5bn on mortgage mistake

• Halifax shock as UK new mortgage business plunges

• HBOS hikes SVR, hits borrowers

• Shares in HBOS drop nearly 5% on cautious outlook

• HBOS cautious as bad debts hit £1.7bn

HBOS must be more measured

The bank insists that it moved promptly to reverse its lending practices when it saw that new lending was falling

Related Internet Links

• HBOS company information

• HBOS share price chart

• HBOS forecast

“We are committed to free banking,” he said. “It has served us and the UK consumer well. It also encourages switching, which we favour for selfish reasons as we increase our share of current accounts.”

Profits from corporate banking, where HBOS has benefited from a booming lending to the private equity and commercial property sectors, increased 17 per cent to £1.66 billion. Those from international operations, which include BankWest in Australia and Bank of Scotland’s Irish branch network, were up 34 per cent to £820 million.

The full-year dividend rose by 15 per cent to 41.4p. The shares, which have risen 17 per cent since September, fell 52p to £10.81.