The bank reported profit before tax of £903m in the first half of 2018 in a results update, as income fell and credit impairment costs increased, compared to the same period in 2017.
Income was hit by a fall in average new mortgage prices in 2017, on top of a drop in the number of customers on Standard Variable Rates (SVR), according to the lender.
However, gross mortgage lending reached £14.6bn in the first half of 2018, up from £11.6bn a year earlier, as the bank focused on pricing and rentention.
Around 78% of mortgages that reached the end of their incentive period were retained, Santander said, with 54% of remortgages taking place online.
The bank added that customers continue to take on fixed-rate products, influenced by low mortgage rates and the competitive mortgage market.
The lender’s buy-to-let balance sheet increased £0.9bn to £7.7bn with a continued focus on non-professional landlords.
Weak buyer demand and subdued house prices are set to continue, with the mortgage market likely to grow by around 3% in 2018, Santander forecast.
The bank expects its gross mortgage lending and lending to UK companies to be broadly in line with market growth for the rest of the year.
Nathan Bostock, Santander UK chief executive, said: “We have continued to deliver for our customers in a competitive market with strong net mortgage growth to UK homeowners and focused lending growth to trading businesses, driven by an emphasis on customer experience and loyalty.
“Our focus remains on long-term customer loyalty, with our retail customer satisfaction in line with the average of our three highest performing peers and our corporate customer satisfaction now 11pp above the market average.”
“Cost discipline is a key priority for management. We are progressing with our 2018 efficiency initiatives and expect the benefits of our actions to come through in the second half of the year.
“By further simplifying our organisation and continuing to harness digital technology going forward, we will improve our operational efficiency and deliver on our purpose – to help people and businesses prosper.”