Nationwide has reported declining profits for the second year in a row, as net mortgage lending slumped by a third amid intense competition.
The UK’s largest building society reported a 7.3% drop in statutory profits to £977m for the year to 4 April, down from £1.05bn the previous year. Profits include the £116m cost of buying back debt.
Net mortgage lending fell from £8.8bn to £5.8bn, and Nationwide’s share of the market nearly halved, from 25.4% to 13.0%. Even so, it said it remained the UK’s second-biggest mortgage lender, behind Halifax.
The Swindon-based mutual blamed fierce competition that forced it to lower mortgage rates, hurting profit margins, and said there was no sign of a let-up.
Mark Rennison, the Nationwide chief financial officer, said: “Our view is price competition will continue, which is good news for customers.”
Nationwide has been hit by the end of the Bank of England’s term funding scheme, which was launched after the Brexit vote to provide cheap finance to enable banks to lend at lower interest rates. Rennison said competition had increased because the big five banks had returned to the market after ringfencing their high street banking operations from the riskier parts of their businesses.
The mutual’s buy-to-let lending also continued to fall, after it tightened affordability criteria for landlords.
Last year, Nationwide’s profits tumbled 18% after it sought to protect savers from rock-bottom interest rates. It has continued to do so, holding savings rates on average more than 50% higher than the market average.
As a member-owned mutual organisation, it has greater flexibility on mortgage and savings rates, unlike the large banks which have to answer to shareholders.
However, savings deposits grew more slowly, up by £3.5bn against a rise of £5.8bn the previous year, although the group maintained its market share at 10%.
Nationwide said it attracted 816,000 new current accounts, more than any other brand in the past year. It doubled student account openings to 21,000 after improving terms.
The building society’s membership reached a record of 15.5 million. Of those, 8.1 million are “engaged” members – those who have a current account, mortgage or savings deposit of more than £5,000 – also a record high.
Joe Garner, the Nationwide chief executive, said: “We anticipate modest growth in our core product markets, reflecting the outlook for the economy as a whole. With employment growth expected to slow and pressure on household budgets fading only gradually, mortgage lending is likely to rise at a fairly pedestrian pace.”
The group expects the UK economy to grow at 1% to 1.5% over the next few years and the housing market to remain subdued, with house price growth slowing to 1% over the next year.
Nationwide wants to enter the business banking market and is applying for up to £50m of funds from Royal Bank of Scotland, which is being forced by the government to provide £775m to rivals so they can improve their services. Garner said Nationwide would target small and medium-sized firms (SMEs) with annual turnovers of £20m to £25m.
He said Nationwide would be “the only player in the market that has a full branch network and is targeting the smaller half of SMEs”.
The building society has repeatedly looked at offering business banking in the past, but was deterred by the high cost of entry. Its push into business banking comes at a time when the other large financial institutions have come under heavy criticism for their treatment of small businesses.
