Nationwide warns inflation surge will hit house prices


Nationwide Building Society has warned that rising inflation and shrinking household budgets will hit the economy and house prices in coming months.

The warning came as the UK’s largest building society reported on Friday that its annual profits had doubled — for the year to April 4, mortgage growth and higher interest margins pushed pre-tax profits to £1.6bn, up from £790mn the year before.

UK chancellor Rishi Sunak said this week that “the next few months will be tough” after UK inflation hit 9 per cent in April, its highest level in over 40 years and more than any other G7 economy.

Nationwide chief executive Joe Garner said that while the lender had not yet “seen significantly more people fall into financial difficulty” those “already struggling are finding it even more tough”.

“The great injustice of this: the lower your income, the larger proportion is spent on food and fuel. By definition this hits the poorest hardest,” he added.

Garner, who will be replaced at the head of the lender by TSB head Debbie Crosbie in June, added that the “cost of living crisis affects every person in a different way”.

Gross mortgage lending at Nationwide, which is the second largest home-loan provider in the UK, rose from £29.6bn to £36.5bn.

The company’s net interest margin, the difference between the interest it gets on its loans and securities investments and the rate it pays for deposits, rose by five basis points to 1.26 per cent.

Rate hikes from the Bank of England have led UK lenders to increase interest rates on mortgages. That, in turn, has led to a surge of mortgage applications as borrowers rush to lock in rates before they get any higher.

“The housing market has been remarkably resilient so far this year — it has continued to run above pre-pandemic levels for the first three months,” said Robert Gardner, Nationwide’s chief economist. “But with the pressure expected in coming quarters, it seems logical it will slow.”

The building society’s common equity tier 1 ratio, a key benchmark of balance sheet strength, fell to 24.1 per cent, a significant reduction compared with the 36.4 per cent in the previous year but well above regulatory minimums.

Nationwide said that this was the result of regulatory changes brought in at the start of the year.

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