Nationwide bounces back with record mortgage lending

Britain's biggest building society, Nationwide, yesterday reported an 81% surge in net mortgage advances to a record £13.2bn, overtaking Barclays to become the UK's fourth largest mortgage lender.

Soaring demand for home loans, fuelled by the housing boom, helped to lift pre-tax profits 21% to £426.8m.

During the year to April 4, Nationwide took a 12.8% share of the net mortgage market, which means that more than one in eight home loans taken out during the period was a Nationwide product, well above its traditional 7.9% share.

The surge has propelled the society into fourth place in the league table of mortgage lenders, behind Halifax/Bank of Scotland, Abbey National and the Lloyds TSB group. It has been helped on its way by Barclays' decision last year to scale back its mortgage lending amid concern about other lenders' aggressive tactics.

It is a remarkable bounce-back for Nationwide, which was criticised for a 2001 decision to abandon low-rate mortgage deals that lure new customers at the expense of established borrowers. Some commentators said the move was disastrous and its share of the mortgage market slumped to little more than 3%.

Announcing annual results, Philip Williamson, chief executive, said the figures "provide clear evidence that treating all our mortgage customers fairly is definitely paying off".

With worries that Britain's borrowing binge could tip over into a debt disaster, he insisted the society was lending prudently. "We are a very responsible lender. Arrears are at a record low and the average loan to value ratio across our mortgage books stands at around 38%."

Nationwide had 1.2m borrowers but repossessions were down 60% to only 56 properties, he added.The society does not do any lending above 95%.

Nationwide recently disclosed that the annual rate of house price growth was now running at almost 19% after another jump in prices in April. Mr Williamson said the society believed house price inflation would fall back to 15% by the end of the year, and envisaged a "progressive slow down" rather than a crash. Even if, at worst, house prices fell by 10%, "most of our borrowers have got a great deal of equity and they should still be able to service their mortgages".

Less cheering for those with variable rate mortgages is his prediction that the Bank of England base rate could hit 5% by 2005. Last week the society increased its base mortgage rate by 0.35% after this month's quarter point base rate rise, a move that will have left some of its customers less than pleased.

Nationwide performed well in the current account market, with more than 500,000 accounts opened during the year, 33% up on 2003. The society, with 11m members, has doubled its asset size to more than £100bn in the six years since 1998, when carpetbaggers tried to persuade customers to vote for Nationwide to convert to a public company.