HBOS, the banking group, disappointed some in the City today by delivering a flat update on trading over the first half of the year, despite claiming it was "comfortable" with profits forecasts of nearly £5.2 billion before tax for the full year.

Shares in the UK's fourth-largest banking provider lost 11p, or more than 1 per cent, in early deals after it talked of "broadly stable" margins, flat growth in mortgage lending and a "competitive environment" at its corporate banking division.

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Mark Thomas and James Hutson, analysts at financial services specialist Keefe, Bruyette & Woods, said there was still a long-term case for buying HBOS shares but expressed disappointment with the update.

"We had been expecting a positive trading statement from HBOS, reflecting good improving mortgage volumes, continued good corporate asset quality, a good headline to income number from its corporate division, growth in equity-related sales to branch customers, with some prospective upside from a 'present' of one of either an increased buyback, a cost programme or [embedded value] accounting for life," they said.

"In the event, the statement was both short and featureless and, as such, may be merely disappointing today."

Full-year profits of £5.2 billion would represent a 7 per cent increase on the £4.84 billion that HBOS made last year.

The bank, Britain's biggest mortgage lender, said its share of this market was running at similar levels to the first half, when it claimed 17 per cent.

Although HBOS has struck a conservative policy on lending - concentrating on credit quality rather than volume - this suggests it has not been able to capitalise on the booming demand for house-buying.

Yesterday, the Council of Mortgage Lenders, which collectively represents 98 per cent of all residential mortgage lending in the UK, said gross loans for buying properties totalled £28.7 billion last month.

This is the strongest May figure on record and only 0.5 per cent below the record for a single month, in July 2004.

The British Bankers' Association - whose members cover about 65 per cent of the market - also said yesterday that mortgage lending worth £5.7 billion was approved last month, higher than the average over the past six months.

"We are delivering growth in banking and savings products, while our appetite for unsecured asset growth remains deliberately restrained," HBOS said.

Elsewhere, HBOS said sales of investment products were "strong", the international business was "very encouraging" and first-half charges for bad and doubtful debts would be in line with analysts' forecasts.

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