The buoyant UK housing market and the growing ranks of the self-employed helped Bradford & Bingley on Tuesday report an 8 per cent increase in annual underlying profits.

The phenomenal growth of the buy-to-let market in the UK also helped the Yorkshire-based bank profits exceed analysts' expectations.

Lending for residential mortgages jumped 43 per cent in the year to December 31 to £10.3bn as Bradford and Bingley's share of the mortgage market almost doubled to 4.5 per cent.

Lending to the self-employed and those with unconventional work patterns, the so-called self-cert market, which accounts for a fifth of the group's lending increased by 46 per cent.

The number of buy-to-let mortgages, an area where Bradford and Bingley has been traditionally strong and accounts for half of all the bank's lending, grew by 20 per cent. The bank said it was seeing more competition in this area but with the demand for rental property rising and the length of time properties are left vacant declining, buy-to-let mortgages remained an attractive market for investors, it said.

Overall, Bradford and Bingley's pre-tax profits fell by £16.8m to £246.7m due to the impact of a one-off payment of £89.4m for compensation for mis-selling endowment and investment products.

The one-off cost, which was flagged up in the company's interim results in July, related to Bradford and Bingley's network of independent financial advisers that was closed in 2004.

Underlying profits rose by £26m to £336.1m, ahead of a Reuters' consensus forecast of £333m.

Earnings per share rose to 38.1p from 35.4p and funded a 9 per cent increase in the full-year dividend of 20p.

Bradford and Bingley said it expected house prices to grow at a slower rate this year than in 2006 and estimated mortgage lending to increase by between 5-7 per cent this year.

Three interest rate rises by the Bank of England have dented growth in the housing market. Many economists expect one further increase before the current cycle peaks at a central lending rate of 5.5 per cent.

Like its rivals, Bradford and Bingley said it had seen the level of arrears increase but the bank said the number of borrowers unable to meet their payments had fallen in the second half. The number of cases more than three months in arrears represented 1.3 per cent of total lending last year, up from 1.19 per cent in 2005.

Shares in Bradford and Bingley, which have underperformed rivals in the last three months, gave back early gains and by the middle of the morning were 4¾p or 1 per cent to 461½p.

Source: Financial Times