In a trading statement covering the interim ending 31 May, HBOS says it is not immune to the global dislocation in the market and its performance will be weighted in favour of the second half of the year.
The lender predicts house prices will fall up to 9 per cent this year and there will be a modest rise in unemployment and further slowing in the economy.
It expects its own margins to remain stable and potentially improve in 2009.
Arrears in its mortgage book are in line with the lender’s expectations, although declining house prices are putting pressure on impairment charges.
The value of specialist mortgage debt in arrears in May was up to 3.06 per cent from 2.36 per cent during the same month last year.
The value of mainstream mortgage debt in arrears increased less sharply from 1.22 per cent in May last year to 1.43 per cent this year.
HBOS’ Treasury portfolio remains predominantly AAA-rated securities, although writedowns on securities have increased by £58m to £1bn.
Despite unfavourable market conditions for equities, HBOS says its investment business is still seeing good profit growth for 2008.