The bank also said weaker stock markets had led to lower sales of investment products.

But its buy-to-let arm, Mortgage Express, had grown rapidly and was now the largest part of its business.

Bradford & Bingley's pre-tax profit before one-off items for the six months to the end of June was �132.4m ($212.9m), down from �135m a year earlier.

After exceptional items are included, profits rose 5.5% as 2002's profits came in at �125.5m following the one-off cost of ending a venture with a US firm.

There was good news for shareholders, with the bank proposing an interim dividend of 5.5p, up 12.2% on a year earlier.

Homebuyers' caution

The results were broadly in line with analysts' expectations.

Chairman Christopher Rodriguez, said the fall in first-time buyers was good for the market.

"They are realising you don't have to borrow the money," he said.

"That caution is good because it will stop a crash."

New lending

Bradford & Bingley focuses on mortgages for businesses, people renting out their homes, and people without full-time employment.

The bank also sells other companies' mortgages and financial products through its brokerage business.

Total new lending in the first half more than doubled to �4.6bn from �2.2bn a year earlier.

Half of the new lending was for buy-to-let mortgages, the bank said.