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Nationwide Issues Warning on Mortgage Arrears Amidst Rising Profits

Nationwide has issued a cautionary note regarding the rise in mortgage arrears, attributing it to the strain felt by borrowers amidst heightened interest rates. The building society, however, reported a surge in profits for the first half of the year, reaching £1.3 billion, benefitting from the elevated interest rates.

The increase in borrowing costs, a consequence of the Bank of England's 14 interest rate hikes since late 2021, has led to financial difficulties for some mortgage holders, contrasting with the positive impact on savers.

While Nationwide acknowledged a rise in residential mortgage arrears from historically low levels, it emphasised that the figures remained below the industry average. The institution anticipates further increases in arrears due to the combined effects of inflation and higher interest rates adversely affecting household finances.

The Bank of England has set interest rates at 5.25%, the highest since the 2008 financial crisis. Despite maintaining borrowing costs in recent meetings, the Bank signalled a prolonged period of high interest rates to address persistent inflation. Market expectations hint at a potential rate cut as early as the coming spring.

Nationwide identified higher interest rates, ongoing inflationary pressures, and an uncertain economic outlook as key risks. In response, the building society increased its mortgage impairment provisions from £280 million to £305 million in April. The government's mortgage charter, designed to assist those grappling with increased mortgage expenses, has seen more customers availing measures. However, as of September, only 5,000 customers were utilising interest-only payments.

Similar to other lenders, Nationwide has benefited from the upswing in interest rates, resulting in increased income. The underlying profit before tax rose to £1.3 billion for the half-year ending September, compared to £980 million a year earlier. The statutory profit also witnessed a rise to £989 million from £969 million after the initial "fairer share" payment to the building society’s members, totaling £344 million.

While 3.4 million members received one-off payments of £100 over the summer, some criticised the scheme as "unfair." Long Standing customers and those with multiple Nationwide products expressed dissatisfaction at being excluded.

Debbie Crosbie, the Chief Executive, provided an optimistic outlook, noting that economic activity, while still below historical standards, surpassed expectations. She also acknowledged signs of relief in cost-of-living pressures. However, Crosbie cautioned that household conditions might remain challenging in the near term, as the impact of previous interest rate increases unfolds and labour market conditions soften.


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