Nationwide has warned the cost-of-living-crisis and rising interest rates could dampen UK mortgage activity in the coming months - and could also see an increase in the number of homeowners falling into arrears with their mortgage.
Updating investors on Friday (November 18), the Swindon-headquartered building society said it expected the Bank of England to increase the base rate of interest in the short-to-medium term, meaning a hike in the rates its customers pay on their mortgages.
In the six months to the end of September, the high street lender reported underlying profit had risen to £980m - up from £850m in the first half of 2021. It also said rising interest rates had supported growth in total underlying income to £2.1bn from £1.8bn the year previously.
Nationwide said mortgage lending had been “robust” over the period with total gross mortgage lending growing by £1.5bn to £19.7bn - up from £18.2bn in the first half of 2021. Residential mortgage balances also increased to £203.6bn from £198.1bn in April, while the level of customer deposits for homes rose by £3.2bn to £181.2bn as people increased their savings.
Despite reporting an improvement in arrears performance over the period to 0.32% - down from 0.34% in April - Nationwide warned rising inflation and interest rates negatively impacting household finances could lead to rise in people falling behind on mortgage payments next year.
“The economic outlook remains highly uncertain, with increases in the cost of living and higher interest rates for borrowers putting further pressure on household finances and reducing consumer confidence,” Nationwide said in a statement.
“This is expected to lead to lower mortgage market activity in the second half of the year. These factors are fully reflected in the economic scenarios used within our credit loss provisions.”
Nationwide said overall its borrowers were “relatively well placed” to withstand the economic challenges in the short-to-medium term as a “significant proportion” of its customers were currently on fixed rates. But the lender admitted the transition to higher interest payments would be “a challenge” for households as they adjusted their spending priorities.
Debbie Crosbie, Nationwide’s chief executive, also admitted the building society was “not immune” to the current economic challenges.
She said: “It's important to maintain financial strength. Our strategy is focused on growing the membership base, increasing value to members, and becoming simpler and more efficient in the way we operate. This will ensure the society's future strength and ability to continue to support members and wider society.”
However, Nationwide said it remained “well positioned to use its financial strength” to support its customers through the challenges ahead.
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