Santander UK PLC (LON:SAN) reported a 15% decrease in pre-tax profit for the first half as a competitive mortgage market put pressure on margins.
The British arm of Spain’s Banco Santander said pre-tax profit fell to £905mln from £1.06bn a year ago and total operating income dropped to £2.31bn from £2.51bn.
Net interest income dropped to £1.81bn from £1.92bn, reflecting the impact of lower mortgage pricing and a decline in standard variable rate (SVR) attrition.
Non-interest income fell to £501mln from £591mln last year when it took £48mln in proceeds from the sale of its investment in payment systems firm Vocalink.
However, the lender said results picked up in the second quarter, with pre-tax profit up 18% quarter-on-quarter to £490mln on the back of cost savings.
READ: Santander blames tough competition and Carillion collapse for lower first quarter profits
It also improved its capital position, ending the first half with a common equity tier 1 ratio of 12.7%, up 50 basis points.
For the 2018 financial year, the group continues to expect net interest income to fall as a result of ongoing competition in mortgage lending and SVR attrition.
An SVR is offered to a customer when they come to the end of their mortgage deal but keeping them on that rate has become more difficult for banks due to intense rivalry in the market and low borrowing costs. Instead, customers are remortgaging with cheaper fixed rates or going elsewhere to find a better deal.
Santander UK expects SVR attrition for 2018 to be broadly in line with the net £5.5bn reduction it recorded last year, with more customers refinancing with fixed-rate products.
Costs are anticipated to be higher this year than last, although the benefits of its cost savings efforts are expected to come through in the second half.
Shares fell 2.04% to 411p in morning trading.