Kent Reliance Building Society has avoided the worst effects of the credit crunch to report a near-30 per cent half-year profits boost.

The Chatham-based mutual, which recently gained an £8m pre-tax windfall by repaying debt early, has revealed pre-tax profits of £3.7 million in the six months to March 31, more than 29 per cent higher than the £2.8 million posted in the same period a year ago.

While profit was not its primary objective, the society said, the result demonstrated the soundness of its business model, added to members' reserves and made its long term position even more secure.

Although economic uncertainty and falling house prices had prompted the society to cut its forecast for future mortgage growth, it said there were still opportunities for good quality new business. The society has no involvement in sub-prime lending which has caused such serious problems for many other financial institutions.

Savings increased sharply, mainly as a result of its popular cash ISA, enabling the society to reduce its use of wholesale funding. It said loans were fully funded by savings balances and mortgage arrears were well below the industry average.

The Society, the fastest-growing in the UK over the past 10 years, has reduced its costs by investing in back-office processing in Bangalore, India, and IT. It says it now has the lowest relative cost base in the sector and the ability to trade profitably on narrower margins than competitors.

Chief executive Mike Lazenby said: "The Group has achieved excellent results in the six months to March 31, a period which was generally very difficult for mortgage lenders.

"The benefits of rationalising the branch network, re-engineering business processes and having a fully operational back office facility in Bangalore have been ably demonstrated in this period.

"Management expenses as a percentage of mean total assets are the lowest in the industry by some degree and continue to decrease: the annualised figure for the period was 0.40%."