Housing boom boosts HBOS profits

Mortgage bank HBOS today promised to beat all targets this year after reporting strong first-half profits on the back of a buoyant housing market.

Formed from last year's merger of Bank of Scotland and Halifax, HBOS said interim pretax profits increased 13% to ?1.5bn, coming at the top end of City forecasts. The interim dividend was up 5% to 9.8p a share.

HBOS has benefited from the housing boom, grabbing a 31% share of the mortgage market and exceeding its target of 25%. Mortgage lenders have all been helped by a 38-year low in interest rates, which has fuelled demand for housing to its highest levels for 10 years. HBOS said house prices were likely to continue rising through 2003 although at a lower rate than this year.

"These results confirm HBOS's ability to convert volume growth into profitable growth for shareholders," said the chief executive, James Crosby.

Mr Crosby was confident about a recovery in tumbling stock markets and said house prices in the UK were likely to stay buoyant as interest rates were unlikely to rise soon. With inflation at record lows and the markets in turmoil, the City does not expect interest rates to rise this year.

"We no longer expect rates to rise this year," said a research note from Credit Suisse First Boston. "The main reason is the risk to growth posed by stock market volatility. It is also relevant that inflation is running at a lower rate than expected."

HBOS is making a concerted drive to challenge Britain's big four banks - Barclays, Royal Bank of Scotland, Lloyds TSB and HSBC - and it raised ?1.1bn through a share sale earlier this year to fund its expansion. HBOS was up 8.4% at 606p, giving a boost to the FTSE 100.

· Legal & General, Britain's third-biggest life assurer, reassured investors it was strong enough to cope with stock market falls that have battered the sector as it reported flat first-half profits. The life assurer also announced it was buying an Alliance & Leicester life assurance unit for around ?84m.