Household finances are under worsening pressure, according to Nationwide building society, which reported a fall in profits and warned of tougher trading conditions ahead.

Total mortgage lending slipped from £17.5bn to £16.7bn, largely because of a steep decline in loans for buy-to-let following the tax changes. But as lending for landlords has fallen, loans granted to first-time buyers have surged.

Britain’s biggest building society said it accounted for one in five of all mortgages given to first-time buyers, helping a record 39,500 young buyers on to the property ladder. However, its lending to landlords plummeted by 40% to £1.7bn.

Nationwide sounds note of caution over lending in run-up to Brexit Read more

Half-year profits at Nationwide fell to £588m from £615m, although the society said this was partly because of extraordinary items, and that underlying profitability was ahead. It said that future full-year profits will be in a lower range than previously thought, at £900m-£1.3bn a year, partly because of the poorer outlook for the mortgage market and partly because as a mutual it wants to return gains to customers.

The chief executive, Joe Garner, said that a “sluggish” economy, partly a result of Brexit, weak wage growth and rising prices are straining its customers’ finances.

“Looking ahead, the UK economy should continue to grow, albeit at a slower rate due to the uncertainties around Brexit. Despite the recent base rate rise, borrowing costs overall remain low. However, we know that low wage growth and inflation are putting pressure on household budgets and we remain alert to signs of financial strains on consumers,” said Garner.

Loan impairments – where customers have fallen behind with repayments – were up from £37m to £59m, but remain a tiny proportion of the society’s total assets of £228bn.

The society was ordered by banking regulators four years ago to plug a capital shortfall, but Garner said its capital position is now at an all-time high and significantly above other high street lenders.

Once just a savings and loans provider, the society has emerged as one of the strongest players in current account banking. Garner said that over the past two years it has added 19% more current account customers, taking the total to 7.1m, and that it had taken more account switchers than the major banks combined.

However, the society admitted that pricing pressures in mortgages and loans are intensely competitive, and that its market share is likely to decline over the next six months.

The half-year results reveal just how dependent the society is on the London property market, although it said its exposure was in line with other lenders. It has lent nearly £60bn to homeowners in the capital, compared to just £16bn in the whole of Scotland and Wales, and £22bn in the rest of the south east of England.

Nationwide said house price growth had moderated to the 2% to 4% band in recent months, and that it expected the market to mirror the economy, “sluggish in the near term [but] our central expectation is that it will accelerate in the years ahead, once Brexit uncertainties recede”.

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