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Nationwide says mortgage lending back at pre-crisis levels Nationwide plans mortgages shake-up to help defend profits
(about 9 hours later)
Nationwide Building Society, the UK’s second largest mortgage lender, has admitted profits will come under pressure in the coming months as competition from rivals heats up. Nationwide Building Society is looking at ways to revolutionise the mortgage market by developing products to let homeowners help their children on to the housing ladder and release value in their properties as they grow old.
The company’s new chief executive, Joe Garner – who joined from BT earlier this year – said the group could continue to offer more attractive rates to the members who own the society by generating profit of £1bn-1.5bn a year. The UK’s second-largest mortgage lender revealed it was researching new products as it admitted profits will come under pressure in coming months as competition heats up. Even so the mutual’s new chief executive, Joe Garner – who joined from BT earlier this year – said attractive rates could still be offered to the members who own the building society by generating a profit of £1bn-1.5bn a year.
He added that the uncertainty surrounding the EU referendum on 23 June was also likely to knock UK economic activity in the short term. “As a building society with a core social purpose we go out in search of customer need rather than profit ... Younger people are asking, ‘How do I get a get a foot on the housing ladder’ and older people are asking, ‘How to stay I stay in my house for longer’ but access some of the capital within it,” said Garner.
However, he was upbeat about the results for the financial year ending on 4 April, pointing to the 9% rise in underlying profits to £1.3bn and a rise in the number of current accounts opened at the UK’s biggest mutually owned lender. Chris Rhodes, the Swindon-based lender’s retail director, said: “We are looking at how can you create a product that allows wealth to be transferred from parent to children in order to fund house purchase [and] how you can unlock wealth in a property and stay in the property for longer.” He stressed that no product was yet ready for launch.
The society also reported its highest mortgage lending since before the financial crisis, taking a 13.7% market share with £32.6bn of all lending. Its share of new lending – which strips out mortgages being repaid – was 21.4% and it has increased the age at which it will allow mortgages to be repaid from 75 to 85. The lender ruled out lifting borrowing limits to 100% of the value of a property although it recently increased the age at which it will allow mortgages to be repaid, from 75 to 85. The society reported its highest mortgage lending since before the financial crisis, taking a 13.7% market share with £32.6bn of all lending. Its share of new lending – which strips out mortgages being repaid – was 21.4%.
“As the new chief executive, my job will be to build on this success. As the results show, Nationwide is not in need of radical reform, but it is an organisation that should constantly challenge itself on ways it can improve and offer an enhanced level of service to its members,” said Garner. It is unusual for Nationwide to appoint a chief executive from outside its own ranks and Garner replaced Graham Beale, who took the helm just before the onset of the 2008 banking crisis. Garner also added that the uncertainty surrounding the EU referendum on 23 June was also likely to knock UK economic activity in the short term, but insisted this would not have a major impact on the housing market. Chancellor George Osborne has warned house prices could fall 18% over the next two years if the UK votes to leave the 28 member union.
As Garner announced his first set of results, Nationwide said: “We anticipate that profits are likely to moderate in the period ahead as competition maintains pressure on margins and we focus on delivering value to members, including investment in service enhancements, whilst maintaining our capital strength.” “We do think there is a risk of some uncertainty in the period around the referendum itself. Regardless of outcome people will still need homes to live in and want to save for their future,” said Garner.
The Swindon-based lender attempted to demonstrate its financial strength by saying it could withstand a 40% fall in house prices and could adjust the concentration of its lending in London if necessary. Assuming the uncertainty around the referendum lifts, Nationwide expects UK economic growth to move back towards its long-term trend rate of 2% to 2.5% and expects the housing market to remain resilient.
Buy-to-let lending represents 22% of all its new business, up from 18% the previous year. Nationwide announced in April that it was tightening up its criteria for lending to buy-to-let landlords in the face of tax changes that reduce tax relief on their interest payments from 40% to 20% over five years. He was upbeat about the results for the financial year ending on 4 April, pointing to the 9% rise in underlying profits to £1.3bn and a rise in the number of current accounts opened at the UK’s biggest mutually owned lender.
“As tax will be charged on rental income without deducting mortgage interest payments, it is likely to cause a number of investors to move from a basic rate to high rate tax band, and some borrowers may find that the tax charge exceeds the current net profit they make from rent after interest payments,” Nationwide said. It is unusual for Nationwide to appoint a chief executive from outside its own ranks and Garner replaced Graham Beale, who took the helm just before the onset of the 2008 banking crisis. Garner, who used to work at HSBC, played down the need for radical reform at the UK’s biggest building society.
Buy-to-let lending represents 22% of all its new business, up from 18% the previous year, and it also has a focus on London which it warned could face turbulence in house prices. “Demand in London has in part been driven by the growth in buy-to-let activity (which is more heavily concentrated in London) and there is a risk that the stretched affordability and yield metrics, combined with a change in economic conditions or reduced investor demand, could cause a correction to house prices,” Nationwide said.
Nationwide announced in April that it was tightening up its criteria for lending to buy-to-let landlords in the face of tax changes that reduce tax relief on their interest payments from 40% to 20% over five years.
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Landlords can only borrow up to 75% of a property’s value, instead of the current 80%, and prove that their rental income is at least 145% of their monthly mortgage payments, higher then the industry norm of 125%.Landlords can only borrow up to 75% of a property’s value, instead of the current 80%, and prove that their rental income is at least 145% of their monthly mortgage payments, higher then the industry norm of 125%.
There could also be an impact on house prices in London, where property is worth twice as much as the average of the UK as whole, Nationwide said. “Demand in London has in part been driven by the growth in buy-to-let activity (which is more heavily concentrated in London) and there is a risk that the stretched affordability and yield metrics, combined with a change in economic conditions or reduced investor demand, could cause a correction to house prices,” Nationwide said. .
Assuming the uncertainty around the referendum lifts, Nationwide expects UK economic growth to move back towards its long-term trend rate of 2% to 2.5% a year and it said it expected the housing market to remain resilient, with any dampening of activity from modest increases in interest rates offset by a strengthening labour market and an under-supply of housing.
Profits on a statutory basis, which including the £46m contribution to the Financial Services Compensation Scheme, and other items, were £1.2bn, up 23%.Profits on a statutory basis, which including the £46m contribution to the Financial Services Compensation Scheme, and other items, were £1.2bn, up 23%.
There was a rise in provisions for customer redress to £127m from £59m, with much of the increase relating to payment protection insurance (PPI).There was a rise in provisions for customer redress to £127m from £59m, with much of the increase relating to payment protection insurance (PPI).