Nationwide’s underlying profit for the six months to 30 September 2010 was £147m compared to £117m for the same period of 2009.
The boost in profits was driven by a 44% drop in impaired loans to £179m compared to £317m for the same period last year, after Nationwide tightened its lending criteria.
Nationwide held onto its share of the mortgage industry during the first half of 2010, with gross residential lending of £6bn, giving it 8.5% market share, up from 8.3% for H1 last year.
Its gross lending broke down into £4.7bn of prime lending and £1.3bn of specialist lending, made up almost entirely of buy-to-let mortgages.
However, its decision to continue its Base Mortgage Rate (BMR), with a rate capped at 2% above base rate which the majority of its existing borrowers are on, has cost the mutual an estimated £300m for the first six months of the year.
It said that with interest rates remaining at historically low levels, there is little incentive for borrowers to move away from BMR and its BMR balances have increased as a result.
In addition, it has continued to waive the contractual floor of 2.75% on its tracker mortgages, instead applying a floor of 2%, which it said had saved its members £34m in mortgage interest over the six months.
The proportion of Nationwide’s mortgages more than three months in arrears remained low at 0.67%, slightly down from 0.68% in April 2010 and less than a third of the CML industry average of 2.15%.
Its average LTV for new residential lending was 64%, while the average LTV for the whole portfolio has reduced 1% to 47%.
Graham Beale, chief executive of Nationwide, said: “This performance provides a very firm foundation on which we will build. Despite the fragile economic environment I am confident that our long-term, good value products, excellent service and strong balance sheet will hold us in good stead for the second half of the year.”
Nationwide predicted that house buyer activity will remain weak through 2011 as uncertainty continues over the economy.
However, while supply has increased significantly on last year, the mutual does not expect to see large house price falls like those of 2008 given that interest rates will remain low and limit the level of arrears and distressed sales.
