The bank says mortgage lending has rebounded

Analysts had pencilled in underlying pre-tax profits of about �296m in 2005.

But B&B chief executive Steven Crawshaw said mortgage sales in the second half of the year were on track to hit record levels after a first-half slowdown.

Sales rebounded in the wake of a recent interest rate cut and a rise in demand for rented property, he said.

"Our residential lending business has performed strongly with volumes increasing steadily over the period and we expect volumes in the second half to reach record levels," said Mr Crawshaw.

The outlook for the buy-to-let market was positive in both the near and longer term amid low unemployment and interest rates, he added.

Bradford & Bingley's fortunes are tied to the housing market because it specialises in higher-margin mortgages for the self-employed and has around a 20% share of the buy-to-let or landlord mortgage market.

The bank said it was booking a one-off charge this year, similar in size to a provision of �37m last year, to cover compensation to customers after investment products were missold by its closed financial advisory business.