The soaring London property market is heading for a “natural correction” with a slight slowdown in sales already under way, according to Nationwide building society. Unveiling a big leap in profits at the mutual – partly a result of customers switching their accounts from the Co-operative Bank – the society’s chief executive, Graham Beale, said: “We could be seeing the early sign of a natural correction in the London housing market.” He added that sales had begun to slacken in the capital, but did not predict a widespread slump: “We are going from frenetic at the start of the year to merely very, very busy.” According to Rightmove, a property website, asking prices for property in London have leapt by £80,000 since the start of 2014 alone, and prices in the capital are 30% above their 2007 peak. Separate figures from the Council of Mortgage Lenders showed that lending to home-owners in the capital was up 37% in the first three months of 2014 compared with the same period last year. London property developer Telford Homes reported a doubling in profits in the latest sign of surging demand for bricks and mortar in the capital. But the developer, which sells about one-third of its homes to foreign investors, played down fears of a housing bubble in London.
It said the imbalance between demand and supply “inevitably” led to rising prices and would continue to underpin the market. Nationwide’s caution about further price rises in London came as it revealed record pre-tax profits of £924m, nearly five times their lowest level in the depths of the financial crisis and significantly above the previous peak of £781m in 2008. The surge in profits comes after a 52% jump in net mortgage lending and a £4.9bn increase in savings balances. Nationwide accounts for 10% of the UK mortgage market, and just over 12% of all savings balances.
The society also revealed that 32% of its mortgage lending in 2014 was for house purchases in London, up from 30% the year before and just short of the total amount it lent in the north, Scotland, Wales and Northern Ireland combined. Over the year, Nationwide added a net 300,000 current accounts, bringing the total to 5.5m and making it a serious challenger to the traditional high street banks. It confirmed that Co-operative bank customers had been moving to Nationwide as an alternative mutual player, but refused to disclose precise figures. “We are clearly seeing some Co-op customers coming over to Nationwide on the basis of our values and mutual stance,” said Chris Rhodes, group retail director. Behind Nationwide’s bumper profit figures lies a big increase in its ‘net interest margin’ – the gap between what it charges mortgage holders and what it pays out in interest to savers – which rose from 1.02% to 1.25%.
Many householders coming off fixed-rate deals are paying more when they remortgage, while the government’s Funding for Lending Scheme (FLS) has pushed down the interest rates the society needs to pay on savings to attract deposits. It also benefited as current account holders left more money in accounts paying little interest. “The most significant drivers of our higher margin were maturing fixed mortgage deals re-pricing on to higher-margin products and lower retail funding costs, which reflect reduced demand across the market for retail savings, in part as a consequence of the availability of the FLS, and growth in our personal current account credit balances by approximately £1.5bn over the course of the year,” Nationwide said. The average loan-to-value for new mortgages rose to 73% from 71%, but the society said the quality of its loan book remained robust.
The number of loans above 90% of the value of the property was 2.4% of its total loan book. The number of its customers in arrears of three months was 0.63% at the end of 2013, compared with 1.59% across the industry. Gross mortgage lending was up 31% to £28.1bn, equal to 14.9% of all mortgage lending in the UK, with net lending ahead even more, at £9.9bn, up 51%. Buy-to-let lending also surged to reach £1.7bn. But it forecast that the growth in lending volumes in 2014 was likely to slow down, with net lending expected to be just under £1bn a month this year. New affordability checks on borrowers had slowed down applications, it said, but had not resulted in lower lending volumes.