A spokesperson for the bank said that £3.1bn was an “exceptional figure” and was due to Covid-19.
According to its latest results, The Co-operative’s mortgage pipeline for the first half of the year is close to around £1.1bn, which the lender said shows more “normalised, pre-pandemic levels”.
This compares to a mortgage pipeline of £900m in Q1 this year, and in £1.5bn pipeline in its half-year results last year. Figures were not disclosed for the end of Q3 and at year-end.
Prime residential mortgage balances came to around £18bn and buy-to-let mortgage balances were around £1.49bn. This is in line with year-end figures.
The spokesperson added that applications made up 55 per cent of the pipeline and offers consisted of around 45 per cent.
Core mortgage accounts with more than three months arrears stood at 0.14 per cent, up from 0.13 per cent at the end of last year.
The average core mortgage loan to value (LTV) was 55.2 percent, which is down from 56.8 per cent at the end of last year.
The lender’s profit before tax came to £61.9m, which compares to £21.4m in the same period last year.
Mortgage transformation programme progress delayed
The Co-operative said there had been some delay to its mortgage and savings transformation programme that is moving mortgage servicing operations in-house.
In its annual report last year, the bank said it had given notice to its current mortgage servicing operations provider, Capita, and it would move operations in-house by December this year.
The lender said this is now expected to complete in 2023 but said the mortgage servicing in sourcing was “well progressed”.
It explained: “The mortgage and savings platform simplification activity is complex for the bank but it is important that we deliver a safe and successful migration of customers to the new platform.
“As a result, further work is needed to achieve those goals, with the mortgage platform integration now expected to complete in 2023, later than initially planned.”
The bank added that completing the programme would lower the group’s operation risk profile and deliver “significant improvements in customer experience and diversification of product proposition”.
The company said operating expenditure had increased by eight per cent to £175.1m compared to the same period last year.
It explained that staff costs had risen due to the phasing of performance-related pay taking place earlier than the prior period and fiscal support measures it had put in place for colleagues.
Non-staff cost increased due to impact of “one-off gains” in the first half of last year, such as property costs, lower PPI releases. The first half of this year also saw a rise in customer fraud costs.
Mortgage market expected to be more volatile in second half of year
The Co-operative said over the first half of the year, the mortgage market had “remained challenging and competitive” with downward pressure on completion volumes and margins for new business and retention.
“This has been compounded by rising swap rates, as financial markets have reacted to both actual and expected changes in base rate,” it explained.
The Co-operative said that in 2020 and 2021 the group was able to write “high volumes of mortgages on five-year fixed rate terms with strong completion margins”, so its blended margins across the book were strong.
It said now its recent trading activity was weighted more towards two-year fixed rates and the group has sought to protect margin across five-year fixed rate products.
“The group has reacted quickly to market volatility through the removal and repricing of products, ensuring that the impact to margins is minimised and the group is able to write mortgages that drive a sufficient return,” the lender noted.
The bank continued that it expected more volatility in the mortgage market in the second half of the year and further action may be needed to manage mortgage margins and volume.
Results are ‘better than anticipated’
Nick Slape (pictured), chief executive of The Co-operative, said it had made “significant progress” in the delivery of its strategy in the first half of the year.
He said: “These results are better than anticipated at the start of the year and therefore, looking ahead, we have upgraded our outlook for 2022 whilst increasing the investment to be made available for customer service and simplification initiatives.
“Our low-risk balance sheet, along with the recent successful capital issuance, support our customer-focussed goals to grow the bank from an efficient and resilient foundation.”
The bank’s net interest margin has been upgraded to 155 basis points and total statutory costs has risen to £360m as it will “further invest in customer service and simplification”.
He continued that while the economic outlook remained uncertain, it was “committed” to helping customers and colleagues during this challenging time.
Slape pointed to the decision in the first quarter to make a one-off payment to lower-paid colleagues and said from September it would increase annual salaries by £1,000. He said this would apply to around 95 per cent of colleague across the bank, excluding those on higher salaries.
