The housing market is starting to cool, Nationwide building society has said as it reported a fall in mortgage lending in the past six months.
Graham Beale, chief executive of the UK’s biggest customer-owned lender, said its share of mortgage lending had reduced as banks started to move back into the home loan market.
Nationwide’s net mortgage lending, which takes account of loans being repaid, slumped by £2bn to £3.6bn in the six months to the end of September, while gross mortgage lending fell £1bn to £12bn, knocking its market share to 12% from 15.4%. However, during the period the society’s net lending to landlords increased from £600m to £800m.
“The housing market is cooling off relative to where we were at the start of the year,” Beale said.
Banks such as Santander and Lloyds Banking Group were stepping back into lending, after sucking £1bn of credit out of the market in the first part of the year, at a time when mutuals were putting £33bn of lending into the housing market.
Despite the drop in lending, Nationwide reported a doubling in pre-tax profits, up from £281m to £598m. Beale said the society was pulling back from commercial lending – one of the areas where Nationwide had made mistakes during the 2008 financial crisis – to focus on savings, mortgages and current accounts.
More than a third of the society’s commercial lending is “impaired”, meaning the borrower has not adhered to the repayment schedule. Nationwide reduced its commercial loans book from £7.8bn to £5.8bn during the period.
Beale said the society was making slow progress in its penetration of the current account market. Having set a target for a 10% share, the society has 6.6%, up from 6%. “It shows how deeply embedded the UK consumers are to the banks they grow up with,” he said. The industry is being subjected to a review by the Competition and Markets Authority, which will take 18 months.
Nationwide enjoyed strong savings inflows, with a £3.5bn increase. But Beale expressed concern about the impact that George Osborne’s pensioner bonds will have on the mutual sector. The bonds are expected to pay 2.8% interest for one-year money and 4% on three-year bonds, or higher than any rates currently available. The government has indicated it wants to draw in £10bn from pensioner bonds, and Nationwide admitted it would be unable to compete with such interest rates.
Beale said this would have impact on Nationwide’s savings balances, adding that it was disappointing that the chancellor had not been able to channel the bonds through the mutual sector.
The society has been subjected to the stress tests being conducted by the Bank of England – the results of which will be published on 16 December – and is also required to meet the new leverage ratio rules set out by Threadneedle Street last month. The leverage ratio is being set at 3% – the equivalent of 3p of capital for every £1 they lend – and could rise to more than 4%.
