Nationwide warns of margin squeeze as mortgage market intensifies

Nationwide saw underlying profits tumble last year after it increased investment in digital services, and warned that its core mortgage and savings markets remained competitive, despite a surge in the size of its loan book.

The building society, the UK’s largest, said that net residential mortgage lending in the year to 4 April was £8.6bn, up 48% on the previous year. Membership also increased, from 15.5m to 15.9m, with customers holding two or more products rising from 3.2m to 3.4m. Saving deposits also witnessed significant improvement, growing from £3.5bn to £6bn.

But underlying group profits at the bellwether lender fell from £977m to £788m, hit by charges for write-offs and investment in technology. Nationwide announced in September plans to spend £1.3bn over five years on new technologies.

Total underlying income was largely flat at £3.17bn compared to £3.13bn in the previous year.

Nationwide’s net interest margin, meanwhile - the difference between what it pays for deposits and what it earns from lending and a key performance indicator - eased to 1.22% from 1.31%.

Chief executive Joe Garner said the year had been a strong one for the building society, noting: "More people have chosen us for their mortgages, savings or current accounts."

But looking ahead, he said Nationwide expected demand in the housing market to remain "fairly subdued", although economic activity was expected to pick up once "Brexit uncertainties fade and the UK’s trading relationship with the EU becomes clearer".

He continued: "We expect our core mortgage and savings market to remain competitive, with a continued narrowing of net interest margin, and will continue to focus on delivering good, long-term value for borrowers and savers."