Nationwide sounds alarm on bad loans

Nationwide has set aside more than £100m to cover bad loans amid fears cash-strapped households will struggle to deal with their debts. 

Britain’s second-largest mortgage lender, which is owned by its customer-members, saw profits climb to £969m in the six months to September from £853m a year ago. 

But this number was weighed down by Nationwide’s decision to set £108m aside as it braces itself for customers hit by a cost of living crunch to fall into arrears. 

The building society said it was not yet seeing this happen, but that ‘higher interest rates, rising inflation and the uncertain economic outlook remain key risks’. 

Chief executive Debbie Crosbie said Nationwide’s strong performance, boosted by the income it can make charging higher interest rates now the Bank of England has lifted its base rate, would allow the lender to invest in products for its members. 

She said: ‘We have increased the current account switcher incentive and extended our support for members facing increases in the cost of living, including practical support provided in our branches, a dedicated telephone hotline and an online support hub.’ 

Nationwide also passed on a greater proportion of interest rate rises to its savers than the market average, it claimed. But Crosbie noted that Nationwide was ‘not immune to the economic challenges and it’s important to maintain financial strength’. 

The Office for Budget Responsibility, the Government’s Budget watchdog, warned this week that the economy was in a recession that started in the third quarter. It will last a little over a year and wipe 2 per cent off the economy, and drag down living standards by 7 per cent over two years. But Robert Gardner, Nationwide’s chief economist, said he was hopeful that low unemployment and savings built up during the pandemic would soften the blow. 

Buy-to-let borrowing has already begun to fall, Nationwide noted. Crosbie said this could present a further challenge for renters if landlords sell their properties and tenants are left chasing an increasingly small pool of homes. 

All the UK’s other major banks are bolstering reserves in preparation for a slump, although none has started seeing a rise in bad loans. 

Nationwide did, however, have to provide £400m of loans to its pension fund, which faced a cash crunch during the chaos following Kwasi Kwarteng’s mini-Budget. 

Muir Mathieson, the lender’s treasurer, said the scheme was ‘very solvent and very well-funded’.