However, issues are highlighted over credit impairments
Nationwide, the UK’s biggest building society, has reported what it called its ‘strongest ever’ financial results, with profits hitting £2.2 billion for the year to April 4, 2023.
Underlying profit for the year increased to £2.233 billion from £1.604 billion a year ago, while statutory profit increased to £2.229 billion from £1.597 billion in 2022. This growth in profits, Nationwide said, reflects income growth, partially offset by higher costs and charges for credit impairments.
The building society’s total income increased by £806 million due to rising interest rates, with net interest margin increasing to 1.57% from 1.26% of the previous year.
Member financial benefit increased to £1.06 billion from £325 million in 2022, supported by the strength of its mortgage and savings rates relative to the market average.
Mortgage balances also increased to £201.7 billion over the past year from £198.1 billion of the previous year.
Total administrative expenses increased by £89 million to £2.32 billion, reflecting higher inflation, including £40 million relating to cost-of-living support to colleagues.
Nationwide said its credit impairment charge of £126 million for the year reflects a deterioration in the economic outlook during the year, with expected future increases in arrears due to affordability pressures.
“We have delivered a strong financial performance by providing banking that is fairer, more rewarding and for the good of society,” Debbie Crosbie (pictured), chief executive at Nationwide Building Society, said.
“Our strongest financial performance means that we are able to launch the Nationwide Fairer Share Payment, as well as the Nationwide Fairer Share Bond – with a highly competitive interest rate on savings for our existing members. We can do this because we’re a building society, not a bank, and our profit is reinvested for our members’ benefit.”
Chris Rhodes, chief financial officer at Nationwide Building Society, added that the sustained strength of their finances has allowed them to support members through a highly uncertain period and significant cost-of-living increases.
“We have continued to support our members’ borrowing and savings needs during the year, and as a result, have delivered growth in our mortgage and deposit balances.”
Brokers react
Samuel Mather-Holgate, managing director at advisory firm Mather & Murray Financial, said it was no surprise that Nationwide’s credit impairment charges were low.
“Nationwide have always been a vanilla lender, looking for customers with whiter than white credit history,” he pointed out. “But even Nationwide say they expect credit impairment charges to increase this year.
“Nationwide’s share of the pie remained similar to the previous year, but net lending was down nearly 10% showing an overall decline in confidence in the housing market that is unlikely to return until rates start getting slashed later this year. Overall, these results seem very positive for a lender that will be thankful of their policy to exclude those most vulnerable to economic shocks.”
Riz Malik, director at independent mortgage broker R3 Mortgages, agreed that Nationwide’s growing credit impairment charge due to anticipated increases in arrears, linked to affordability issues, is a cause for concern.
“Indeed, there’s an economic storm on the horizon,” he remarked. “As the rise in interest rates eventually affects a larger segment of the population, particularly when more individuals need to refinance their mortgages, financial stress could become more widespread. Nationwide, like its counterparts, seems to be preparing for these challenges ahead.”
Graham Cox, founder of broker SelfEmployedMortgageHub.com, added that Nationwide’s preliminary results highlight how fundamentally the mortgage market has changed in the last year.
“Net lending is less than half what it was in the previous year, illustrating just how much demand has slowed as interest rates have risen,” Cox said. “They also confirm house prices will remain ‘subdued’ throughout 2023, though whether that means they think prices will continue falling or flatline isn’t clear. Personally, I think it’s highly likely they’ll fall due to high mortgage rates and the cost-of-living crisis.”
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