Nationwide’s arrears stay low but provisions spike 143%

Nationwide’s half-year results, for the period from April 5 2020 to September 30 2020, show that its arrears on residential mortgages remained broadly stable, with cases of more than three months in arrears at 0.42% of the total portfolio.

Nationwide explained that arrears levels are likely to have been suppressed by payment deferrals and other government support measures, and in view of UK economic conditions, an increase in arrears from current levels is expected over the medium term.

The lender’s impairment provision balances did, however, increase to £302m (from £252m as at 4 April 2020) due to the deterioration in the economic outlook.

Over the period, total mortgage balances subject to forbearance measures have decreased to £1.18bn, from £1.24bn as of 4 April 2020. Nationwide said that this reduction is likely to be temporary, as borrowers have utilised payment holidays as a method of support during the pandemic, which are not reported as forbearance.

When the government support schemes are withdrawn, and in view of the current UK economic conditions, Nationwide is anticipating a rise in arrears from the current low levels.

Provisions

The results revealed that Nationwide has set aside £139m for loans that may not be repaid, although arrears remain low. This is a 143% increase on H1 2019, where provisions were £57m.

Impairment provision balances on residential mortgages have increased to £302m, a 19% increase from £252m on 4 April 2020.

Provision balances in consumer banking have increased to £531m (from £494m at 4 April 2020) primarily due to the deterioration in economic outlook.

Payment holidays

Nationwide accepted 246,000 mortgage payment holidays and granted 91,000 payment breaks or interest-free periods on loans, credit cards and overdrafts.

The building society also said that at least until the end of May 2021, no mortgage member will lose their home as a result of Covid-19, as long as they work with Nationwide to manage their money.

Chris Rhodes, chief financial officer of Nationwide, said: "Whilst the society’s performance has clearly been impacted by the pandemic, it is pleasing to see the benefits of our conservative approach feed through into the results for the half year. Our margin has stabilised, costs have reduced and profit is stable compared to the same period last year, despite a rise in impairment charges associated with the pandemic and the current uncertain economic outlook.”