This 32 per cent decline reflected the reduction in lending and applications during the national lockdown and restrictions placed on the property market following a “strong” first quarter of the year, OSB said.
Its net interest margin contracted to 250 basis points (bps) from 270 in the same period last year, which the lender said was caused by a delay in passing the base rate cuts onto its retail savers.
Its margins were also impacted by higher yielding mortgage borrowers on existing deals refinancing onto newer, cheaper mortgages.
OSB’s impairment losses in the first half of 2020 were £54.4m, significantly deeper than the £8.6m loss it reported in H1 2019. This represented a loan loss ratio of 60bps from 11bps last year.
The increase was predominantly driven by a £42m charge as the group adopted more severe scenarios in preparation for credit losses resulting from the pandemic.
The results are the first full half-year for the business since the merger with Precise Mortgages was completed in October 2019.
However, despite this OSB’s underlying profit before tax only fell 14 per cent to £156.3m from last year’s £182.8m.
Residential and buy-to-let
Its residential gross mortgage lending dropped almost 30 per cent from £259.9m to £184.7m for the first half of the year, however its residential loan book grew by six per cent from to £1.9bn.
The buy-to-let and SME arm of the business saw a steeper 38 per cent fall in new lending, to £858.3m from £1.4bn during the same period last year.
The lender noted its was currently at 60 per cent of pre-pandemic applications despite higher pricing and tighter criteria.
OSB added that new lending across the whole buy-to-let market for January to June was £18.5bn compared with £20.8bn last year, which it believes reflected a lack of confidence among landlords due to economic uncertainty.
Second charge and commercial
Second charge lending declined 24 per cent to £22.7m after the closure of the Prestige Finance brand. So far, its second charge loan book remains flat at £220.2m compared with £218.6m at the end of last year.
The group’s commercial business was impacted by the pandemic, a tightening of criteria and a review of its risk appetite. It also paused applications on new commercial business in March.
For the six months to 30 June 2020, its commercial business reduced to £852m from its 2019 H2 figure of £888m.
‘Dedication and resilience’
Andy Golding, group CEO, (pictured) said: “I am extremely proud of the way that OSB has performed during the Covid-19 pandemic.
“Our business model and systems have proved to be very resilient and our colleagues have all demonstrated dedication and flexibility, as they worked hard responding to the needs of our savers and borrowers.
“We entered 2020 with a robust pipeline and continued to attract strong application levels in our core businesses prior to the Covid-19 lockdown restrictions, which then significantly impacted application and completion volumes in the second quarter.
He added: “I am encouraged by the recovery in application volumes for our products since the housing market reopened, which are currently approaching 60 per cent of pre-Covid-19 lockdown levels on tighter lending criteria and higher pricing.
“We expect to deliver double digit underlying net loan book growth for the full year, excluding the impact of the structured asset sales in January.”