Nationwide’s profits almost triple as mortgage borrowing stays high

Nationwide more than doubled its pre-tax profit in the first half of its financial year, with the UK’s largest building society boosted by strong demand for mortgage lending.

Pre-tax profit was £850m for the six months to September, close to triple the amount for the same period in 2020. Total underlying revenue rose more modestly to £1.9bn, an increase of about 26 per cent year on year.

A number of UK lenders including Santander, NatWest and Lloyds also reported strong mortgage demand in their third-quarter results. However, analysts have warned that expected interest rate rises by the Bank of England could rein in borrowing and cool the property market.

Nationwide was among the banks and building societies that increased mortgage rates on fixed-rate deals in October, as lenders grappled with surging inflation.

However, Joe Garner, Nationwide’s chief executive, said the UK housing market remained “buoyant and vibrant”, with a continued trend for potential buyers to look for larger properties with more outdoor space.

He added that the end of the stamp duty holiday in September had not dimmed demand for house buying, saying: “It simply served as a further impetus.”

But he acknowledged that the market still favoured existing homeowners given elevated house prices. “If you’re trying to buy your first home, it’s something of a challenge,” Garner said. “While debt servicing remains affordable, prices are high relative to earnings on a historic basis.”

Nationwide’s mortgage lending increased by £5.5bn year on year to a total of £18.2bn for the six-month period, although its market share fell slightly. Garner said the “vast majority” of its mortgage customers were on fixed-rate deals, shielding them from the initial impact of any central bank rate rise.

The group lent to more than 30,000 first time buyers in the period, compared with 21,000 a year earlier.

Nationwide’s net interest margin — the difference between what it pays for deposits and what it earns from lending — improved slightly to 1.24 per cent, up 0.09 percentage points.

Chief financial officer Chris Rhodes said that “the only thing holding back the market is lack of [housing] supply”.

In line with other UK banks, Nationwide announced a net release of credit impairments of £34m, reflecting the stronger UK economy. Net charges for the same period in 2020 were £139m.