Nationwide’s base mortgage rate has cost it £300m

Nationwide, the UK’s biggest building society has seen a 26% jump in profits in the first half of the year, but says its low base mortgage rate has cost it £300m.

The society saw underlying pre-tax profits for the six months to September 30 of £147m, up 26% on last year’s £117m profit.

The society’s equivalent of a standard variable rate, its base mortgage rate is just 2% above the 0.5% Bank of England base rate, currently 2.5%.

It says given the continued low rate environment, there is less incentive for borrowers to move product and BMR balances have therefore increased.

Around 40% of the society’s mortgage book is currently on its BMR and it estimates the cost of maintaining it at this level, relative to other rates charged in the market, has been in the region of £300m for the first six months of the year.

In addition, it has also continued to waive the contractual floor of 2.75% on tracker mortgages, instead applying the floor at 2%, costing it £34m.

Customers who took out a mortgage after April 29, 2009 now revert to its standard mortgage rate of base rate plus 3.49%.

The society has seen total impairment charge on loans and advances to customers reduced by 44% to £179m, compared to £317m in the same period last year, with residential mortgage accounts more than three months in arrears of 0.67%.

The society saw gross residential mortgage lending of £6.0bn in the first six months of the year, representing a 8.5% market share.

Since the half year the group has launched its second public issuance of residential mortgage backed securities, raising £1.52bn.

Gross prime lending in the half year amounted to £4.7bn. Gross specialist lending in the half year of £1.3bn was almost exclusively in the buy-to-let sector.

While the average LTV of residential mortgages completed has marginally increased to 64%.

Graham Beale, chief executive of Nationwide, says: “We have maintained our strong balance sheet, excellent capital ratios and strong consumer franchise. Our focus on the needs of our members has resulted in us performing well in our core markets.

“In mortgages we have preserved our position, with a gross lending market share of 8.5%, and are working hard to keep the housing market moving against a backdrop of subdued conditions. We have simplified our product range and we have honoured our Base Mortgage Rate pledge, with the majority of our existing mortgage customers on a rate which is capped at 2% above the Bank of England base rate.

“Other mortgage customers have benefitted from our waiver of the contractual floor of 2.75% on tracker mortgages.”