Nationwide Building Society records best ever year as profits double on back of surging mortgage demand and interest rate hikes
- Nationwide reported its annual underlying earnings shot up by £814m to £1.6bn
- Over half of its earnings growth came from net interest income rising by £416m
- The temporary stamp duty holiday helped boost demand for mortgage lending
Britain’s largest building society has posted its best annual results ever, with profits more than doubling thanks to soaring demand for home lending and core products.
Nationwide’s underlying earnings shot up by £814million to £1.6billion in the year to 4 April, as the uncertainty experienced for most of 2020 gave way to a stronger market performance than the firm had anticipated.
Over half of earnings growth came from net interest income increasing by £416million, thanks to higher margins on mortgages taken out in the initial stages of the pandemic.
Interest boom: Over half of Nationwide’s earnings growth came from interest income, which benefited from higher margins on mortgages taken out in the initial stages of the pandemic
The mutual financial institution has benefited from surging demand for mortgages in the past two years, buoyed by the temporary stamp duty holiday and a greater desire among Britons to move to more spacious properties.
Even with the end of the stamp duty holiday, the significant jump in UK house prices helped Nationwide’s gross mortgage lending climb by £6.9billion to £36.5billion during the last year.
But the group’s interest income was also boosted by the Bank of England hiking the base rate on several occasions in response to accelerating inflation, which reached its highest level in four decades last month.
Since December 2021, the UK’s central bank has raised interest rates on four successive occasions, initially from a record low of 0.1 per cent to its current level of 1 per cent.
Combined with healthy demand for its ISA products, the Swindon-based firm was able to award £325million to its savings members, a £60million increase on the previous 12 months.
Nationwide said the possibility of future rate increases is likely, given the current inflationary environment, the tight labour market and the lack of spare capacity in the economy.
Departure: Joe Garner will step down as chief executive in early June, when he will be replaced by Debbie Crosbie, who will be Nationwide’s first ever female CEO in its 175-year history
But it warned that the lack of affordable housing and the huge increases in the cost of living could depress activity in the UK property market, and even lead to lower house prices.
Surging inflation poses another major short-term risk to the UK economy, the company added, particularly for those on lower incomes who built up fewer savings during Covid lockdowns.
Chairman Kevin Perry said: ‘We will continue to plan for geopolitical risks and economic pressures arising directly and indirectly from the war in Ukraine, notably the rising energy bills and inflation, which are intensifying pressure on household budgets, which are already under strain.
‘Given our financial strength, we are well-positioned to manage these impacts, as well as to evolve our services to meet our members’ changing needs.’
Nationwide’s publication of its annual results today will be the last involving Joe Garner as chief executive before he is replaced in early June by Debbie Crosbie, who will be the group’s first ever female CEO in its 175-year history.
Garner took up his post at Nationwide six years ago following stints as head of BT’s Openreach infrastructure division and as head of HSBC’s UK retail banking arm.
He has overseen a massive growth in members and mortgage lending while in charge, but has received criticism for earning high levels of compensation while interest rates were at record low levels.
Commenting on his successor, Interactive Investor’s head of investment Victoria Scholar said: ‘Crosbie has a difficult task on her hands as Nationwide prepares for a series of headwinds from the cost-of-living crisis, spiralling inflation, a peaking housing market and the deteriorating economic outlook.’