The bank’s net interest income dropped by 8 per cent compared to H1 2018 largely owing to the mortgage back book, including £2.1bn of standard variable rate (SVR) attrition.
Profit before tax fell 36 per cent to £575m, “predominantly driven by income pressure from the mortgage book, as well as investment in the transformation programme and payment protection insurance (PPI) charges,” the company said.
Operating income was down 8.4 per cent to £2.1bn.
Customer loans grew by 0.4 per cent to £200.6bn, of which 79 per cent were retail mortgages.
Retail mortgages grew by 0.9 per cent to £159.4bn, consumer auto finance and unsecured lending rose 3.1 per cent to £14.bn and loans to corporates declined 3.3 per cent to £23.3bn.
The breakdown of mortgage lending showed that the fixed rate loans business grew by 4.1 per cent to £119.9bn as of 30 June.
The variable rate loans business shrank 0.5 per cent to £23.6bn and SVR loans tumbled 11.4 per cent to £16.3bn.
Net mortgage lending rose by £1.4bn.
‘Highly competitive market’
“These are uncertain times and our profitability has been impacted by a fall in income due to the highly competitive UK mortgage market,” said Nathan Bostock, chief executive officer of Santander.
“Against this external backdrop, we continue to invest in our business in order to strengthen our competitive position and improve efficiency which has resulted in additional strategic transformation costs.
“These results reflect the start of a multi-year investment in our strategic transformation programme, a number of external factors and our prudent approach to risk.
“Our business remains strong, with further enhancement of our mortgage franchise and increases in our retail and corporate deposits, both important customer loyalty drivers,” Bostock said.
The average loan size for a new mortgage in the south east was £274,000 and for the rest of the UK it was £151,000.
Loan book deep dive
The total, all-time loan book breakdown by borrower showed home mover loans at £69.2bn, re-mortgagors £51.2bn, first-time buyers £30bn and buy to let at £9bn.
By location, it detailed loans in London worth £39.8bn, the Midlands and East Anglia at £21.2bn, the North region £22.1bn, Northern Ireland £3.3bn, Scotland £6.7bn, the South East excluding London £49.5bn and the South West, Wales and other regions at £16.8bn.
Santander reported helping 15,000 first time buyers, up 20 per cent year on year, during the first half.
The lender said it continued “to stretch the mortgage franchise” through innovations such as introducing an online over payments tool and 40-year mortgages.
The company retained 60 per cent of refinanced mortgage loans online.
The bank is implementing a transformation programme that foresees investment of £400m by the end of 2021.
Its’ outlook for the remainder of 2019 “remains broadly unchanged and is predicated on the UK’s orderly exit from the European Union. Given the market perception that there is an increased likelihood of ‘no deal’, we continue to prepare for all outcomes,” it said.