According to Nationwide’s half year results, 0.38 per cent of the society’s residential mortgage portfolio was behind on repayments for more than three months at the end of September, compared with 0.32 per cent at the start of April.
Nationwide said that further increases in arrears from current levels are expected, due to both inflation and higher interest rates negatively impacting household finances.
As such, impairment provision balances have increased to £305m (4 April 2023: £280m) primarily due to higher interest rates, which have resulted in an increase in the provisions held to reflect mortgage affordability risks.
Economic conditions stable but uncertain
Assessing future risk, Nationwide’s half year results report said: “Overall economic conditions are stable but remain uncertain with high inflation, modest reductions in house prices and higher interest rates. Whilst the bank rate is expected to stabilise, the higher rates customers pay on their mortgages exacerbate existing pressure on their finances, impacting both the housing market and mortgage trading volumes. Whilst arrears rates have increased and more customers are taking up measures offered under the Mortgage Charter, these factors are adequately reflected in the assumptions used in our provisioning calculations.
“The geopolitical environment remains volatile with the ongoing war in Ukraine and the conflict in Gaza, which commenced after the half-year reporting period.”
Nationwide has signed up to the Government’s Mortgage Charter. This offers borrowers who are up to date on their mortgage payments the option to switch to interest only payments for a six-month period. As at 30 September 2023, £862m of outstanding balances have taken up this option.
Nationwide: ‘Continuing to support customers in difficulty’
Debbie Crosbie, Nationwide chief executive, said: “Encouragingly, economic activity, while still weak by historical standards, has held up better than expected, and there are signs that cost-of-living pressures are starting to ease. However, conditions for households are likely to remain challenging in the near term, as the effect of previous interest rate increases feeds through and labour market conditions soften.
“Despite the uncertain economic outlook, the credit quality of our lending portfolios is strong and our capital resources are robust. As more households adjust their expenditure priorities in the higher interest rate environment, we will continue to support those borrowers who face payment difficulties.”