The mutual also saw its net interest margin fall by 13 basis points to 0.83 per cent while pre-tax profits dropped from £202m to £147m.
“This year, profits have fallen as a result of two one-off items, a reduction in margin as a result of a continued drop in mortgage market pricing, combined with our strategy of paying the best possible interest rates to members,” the lender said.
“As a result, we have seen a decline in net interest income and an increase in costs as we continued to invest to improve our services.”
Remortgaging driving business
The mutual noted its overall mortgage book grew by £3bn to £42.2bn, although this increase was also slightly down on the £3.4bn rise in 2018.
It revealed that new lending continued to be driven by strong remortgage levels overall with 75 per cent of new buy-to-let loans and 46 per cent of new owner occupier loans being remortgages.
Owner occupier loan growth increased relative to buy to let with 67 per cent of total new lending being in the owner occupier market, compared to 57 per cent in 2018.
The loan to value of the mortgage book was stable at 55.4 per cent while the proportion of mortgage balances 2.5 per cent or more in arrears dropped further to 0.08 per cent.
The key capital ratio edged down slightly as a result of the mortgage loan book growth and following a correction to its calculation of asset risk announced in December, however it remained well above regulatory limits at 32.0 per cent which the mutual expects to be among the highest reported in the UK.
Borrowers ditching SVRs
Coventry Building Society chief executive Mark Parsons said: “Growth in mortgages was achieved in a highly competitive market, with borrowers actively switching at the end of fixed rate deals.
“Across the market this has led to borrowers moving from higher margin deals written two or more years ago to lower rates. In addition, there continues to be a move from higher margin standard variable rates (SVR).
“These factors result in a continuation of the squeeze in overall margin seen in recent years. We benefit from high levels of retention, reflecting our proposition which includes making all products available to all customers, high levels of borrower and broker satisfaction, and the fact that we have a low proportion of borrowers on SVR.”
