In its annual financial results, Co-op Bank said its mortgage book was “stable” and “low-risk”, with just 0.21 per cent of accounts more than three months in arrears. Further, just a tenth of its book has a loan to value (LTV) greater than 80 per cent.
The average LTV of its core mortgage book was 55.7 per cent in 2023, relatively unchanged from the average of 53.5 per cent at the end of 2022.
Chief executive Nick Slape said 57 per cent of the bank’s gross mortgage lending was made up of retained balances, while its average completion margin was 0.61 per cent, down from 0.77 per cent in 2022. Slape said this was in line with market trends and improved in the final quarter of 2023 as swap rates reduced.
The bank said that, because of this, it “strategically preserved” its margins by managing new business volumes.
Co-op Bank’s acquisition of Sainsbury’s Bank’s mortgage portfolio added around 3,500 customers and £500m in mortgage balances to the lender.
Slape said this demonstrated the bank’s “strength in a competitive UK mortgage market, allowing us to grow balances whilst protecting margins”.
There was a shift to shorter-term mortgages in 2023, the bank said, which it attributed to higher interest rates. Co-op Bank said 27 per cent of its completions were for two-year mortgages, compared to 18 per cent in 2022.
Mortgage prisoner payout
Co-op Bank confirmed it is to pay £28.9m to closed-book mortgage customers who complained about the standard variable rates (SVRs) they were charged between 2011 and 2012.
In November, the Financial Ombudsman Service (FOS) said the bank should redress borrowers who saw their SVR rise from 2.99 per cent to 5.75 per cent over a three-year period.
Co-op Bank board applied the FOS’ findings to borrowers with similar characteristics, even if they did not complain, and decided they should all be compensated. A provision for redress had been recognised.
Profits dented by mortgage redress
Co-op Bank reported a statutory profit before tax of £71.4m, compared to £132.6m in 2022.
It had an underlying profit before tax of £120.9m, down from £136m.
Slape said: “The underlying profit before tax of £120.9m reflects our strong, sustainable and low-risk business model, while statutory profit before tax of £71.4m was impacted by exceptional redress on legacy mortgage business, strategic transformation and adviser costs.”
It invested £14.7m in its mortgage and savings platform, while advisory costs relating to a review of its strategic options came to £7.8m, up from £600,000 in 2022.
In December, Co-op Bank announced it was in exclusive talks with Coventry Building Society regarding a possible merger. It said the discussions were still at the “preliminary stage” and there was “no guarantee that these discussions will result in any potential transaction”.
The bank saw its net interest income (NII) rise by four per cent to £477m, while its net interest margin (NIM) increased by 14 basis points to 1.8 per cent, owing to the increases in the base rate.
Slape said: “2023 has been a year of transformation, and I am extremely proud of what we have achieved.
“We have made significant progress on our IT simplification programme, including successfully in-housing our mortgage servicing capabilities, going live with our new cloud-based mortgage platform and completing 67 per cent of our savings migration. We remain on track to complete the programme in 2024.”
Slape said the bank had an “excellent start” to the year, adding: “We received over 12,500 new current account applications in January, representing an increase of over 300 per cent versus the same period last year. New mortgage origination has also been strong, with £1.2bn applications in January. Looking to the future, whilst the economic outlook remains uncertain, the bank is well-positioned with a low-risk balance sheet and strong capital and liquidity positions.
“We remain focused on delivering attractive and sustainable returns to our shareholders through growing our core mortgage and current account business, supported by the diversification of our mortgage offering and evolving our SME lending proposition.”
