Santander has set aside £20mn this year for expected credit losses through mortgage defaults, after reserving no funds for them in 2021 or 2020.
In its half-year results published today (August 12), the high street bank said it had uplifted its modelled ‘mortgage probability of default’ after it found back testing and monitoring showed “a risk of model underestimation”.
Mortgages in forbearance on Santander's balance sheet also climbed £100mn, from £1.5bn to £1.6bn. It said the majority of customers who have taken a payment holiday have had no “material impact” on forbearance so far this year.
Nationally, mortgage possession claims are increasing. Between April and June this year, repossessions by county court bailiffs increased from 45 to 770 (1,611 per cent), according to Ministry of Justice data published yesterday (August 11).
Despite growing uncertainty around the fate of some mortgages, these products have underpinned huge growth for banks over the past half-year.
Santander credited its 32 per cent uptick in pre-tax operating profit this year in large part to its mortgage book growth. Profit increased from £751mn to £993mn over the first half of this year.
The bank did £7.1bn of net mortgage lending between January and June, compared with £7.5bn net mortgage growth over the entirety of last year.
It added 18,000 first-time homeowner customers, and its net interest income was up 11 per cent over the period, following the impact of base rate increases and the bank’s higher mortgage lending.
“Despite the uncertain operating environment…we have driven a 32 per cent increase in profit from continuing operations before tax, to £993mn, underpinned by £7.1bn of net mortgage lending,” said Santander’s chief executive, Mike Regnier.
The bank’s mortgage loan portfolio sat at £184.4bn at the end of June, compared to £177.3bn at the end of December.
The loans provided by the bank are growing, with loan-to-value on the average new mortgage loan weighted to 68 per cent compared with 66 per cent last year.
Buy-to-let mortgage balances increased £1.6bn to £16.5bn, up from £14.9bn at the end of last year.
But the bank did less remortgages, with deals totalling £11.2bn compared with £14.7bn this time last year.
Santander said it is projecting an increase of 5 per cent house price growth by the end of 2022, but with growth reducing to 2 per cent in 2023 due to the income squeeze and higher mortgage rates.
ruby.hinchliffe@ft.com
