Glasgow-based CYBG, which demerged from former owner National Australia Bank in 2016, said its mortgage book swelled to £23.9bn in the three months to the end of December, up 7.4 per cent on an annual basis.
It said the mortgage market remained highly competitive, which has hit its net interest margins.
It added growth in home loans will slow, although it continues to expect a “mid-single digit” percentage increase for the full year.
The bank, which has 2.8 million customers, believes that mortgage prices will also remain stable throughout the rest of its financial year in spite of intense competition.
Shares in CYBG fell 2 per cent after the update.
The group posted a 3.7 per cent rise in current account and savings deposits over the first quarter to £28.7bn – a 14.8 per cent surge on an annual basis, helped by demand for its new digital app-based service B, which now boasts 150,000 customers.
David Duffy, chief executive of CYBG, said: “We have delivered another solid quarter of growth, despite a competitive operating environment, seeing continued momentum in both mortgage and SME (small-and-medium-sized enterprise) lending.
“While the economic outlook remains uncertain we remain focused on delivering sustainable and prudent growth and are confident we will deliver our guidance for 2018 and the medium term.
“We also continue to take major strides in transforming CYBG into the UK’s leading digitally-enabled challenger bank, positioning us strongly for the future banking landscape.
“Our iB technology platform is ready for Open Banking today with full ‘plug and play’ fintech capability, meaning we can offer real-time, integrated services for our 2.8 million customers.”
Lending to small businesses lifted by a more muted 1.4 per cent to £6.8bn on an annualised basis.
CYBG had already cautioned over the outlook for the mortgage market at its full year results in November.
But it posted its first after-tax profit for more than five years, at £182m for the 12 months to September 30 against losses of £164m the previous year.
It is also targeting more than £100m of cost savings by 2019 – a drive which saw the group announce plans in January to shut around a third of its branch network in 2017 and axe 400 jobs.
CYBG is one of a number of banks that emerged after the financial crisis to fill a gap in small business lending and capitalise on problems at the big banks.
Both home-buyers and shoppers are under pressure from a squeeze on real take-home pay as consumer price inflation rises while wage growth slows.
Commenting on the trading outlook, the statement added: “Despite the ongoing uncertainty in relation to the terms of the UK’s withdrawal from the European Union and its potential impact on the outlook for the UK economy, we remain confident in our ability to deliver the group’s FY18 (full year) and medium-term guidance.”
CYBG reported quarterly net interest margin of 216 basis points, down from 221 basis points in the fourth quarter.
The lender said its CET1 ratio was 12.4 per cent at December 31, which was “comfortably” within its operating range.
CYBG made its London stock market debut two years ago after it was spun off by National Australia Bank.
CYBG is led by David Duffy, who joined the business in June 2015 as chief executive. He has held a number of senior roles in the international banking industry including the position of chief executive officer of Allied Irish Banks.
He was previously chief executive of Standard Bank International covering Asia, Latin America, the UK and Europe.
Mr Duffy was also previously head of Global Wholesale Banking Network of ING Group and president and chief executive officer of the ING franchises in the US and Latin America. Before that, he worked with Goldman Sachs International in various senior positions including Head of Human Resources Europe.
Yorkshire Bank was founded in 1859 in Halifax, West Yorkshire, by Colonel Edward Akroyd, who wanted to provide a means of saving for the working classes.