Nationwide warned that mortgage arrears are rising as the UK’s third-largest mortgage lender reported on Friday that profits were boosted by rising interest rates.
Encouragingly, Nationwide said economic activity, while still weak by historical standards, has held up better than expected, and there are signs that cost-of-living pressures are starting to ease.
The high street lender reported a slight rise in bad loans in its half-year results, with 0.38% per cent of its residential mortgages behind on repayments for more than three months at the end of September, compared with 0.32% at the start of April, as it warned that inflation, economic uncertainty and high borrowing costs remained “key risks”.
Statutory pre-tax profits increased to £989 million in the six months to 30 September 2023, up from £969 million the year before as higher interest rates boosted earnings.
Rising interest rates supported growth in total underlying income to £2.45 billion from £2.19 billion the year before, with the net interest margin up to 1.66% from 1.48%.
Credit impairment charges were lower at £54 million but arrears levels increased slightly, it said.
“Higher interest rates, continued inflationary pressures and the uncertain economic outlook remain key risks,” Nationwide said.
The building society said its balance sheet remains strong, with Tier 1 capital resources increasing by £0.6 billion, leading to a leverage ratio of 6.4% (above its target of at least 4.5%) and a CET1 ratio of 27.4%.