Bradford & Bingley Group today saw their share price tumble after warning profits in the first six months of the year would be below those achieved in the same period during 2002.

The mortgage bank said "difficult market conditions" meant it did not expect profits to surpass the six month figure of £135 million achieved in the first half of last year. It said a drop in transactions in the slowing housing and investment markets had hit its short term performance.

In early trading on the Stock Exchange this morning the share price dropped 20.5p to 317.5p.

But, in an upbeat message to shareholders ahead of the group's close period, it said the core lending business had continued to perform strongly, achieving increased assets and market share.

It had achieved a "significant increase" in net lending in the first five months of the year and savings, balances and margins had also been maintained in a highly competitive market, the company said.

Organic growth was boosted by the group's acquisition of loan portfolios from GMAC-RFC, part of the General Motors group, totalling £730 million.

Group chief executive Christopher Rodrigues said a focus on selective lending provided a strong model in the "highly competitive" UK mortgage market.

He said: "Our business performance has been underpinned by record growth in quality selective lending and increased mortgage broking revenues. These have largely offset the impact of a slow housing market and a decline in demand for investment products."

Since floating in 2000, B&B has transformed itself from a traditional mortgage and savings specialist to offering a diverse range of financial services. It has built up its mortgage business by focusing on niche lending rather than the low margin "vanilla" or first-time buyers market.

B&B's distribution business, which sells own brand and third party products, has seen mortgage broking continue to grow strongly. But demand for investment products has meant other revenues have fallen due to lower transaction volumes.

Additional expenditure has been incurred as the bank prepares for impending regulatory changes. As a result, the distribution business will only make a marginal contribution to profits in the first six months although B&B is expecting second half performance to improve.