Santander braces for 10% plunge in house prices and rising borrower defaults


High street lender Santander has warned house prices are set to tumble back to 2021 levels, and set aside more cash for bad debts as it braces itself for a possible rise in borrowers falling behind with repayments.

The Spanish-owned group is pencilling in a 10% fall in house prices this year as interest rate hikes knock homebuyer demand and a 1.3% contraction in the wider UK economy over 2023.

Its full-year figures showed the group put by £321 million in 2022, including a further £65 million in the fourth quarter, as an expected recession in the UK is set to weigh on borrowers, warning that the cost-of-living crisis could start to see customers fall into arrears.

This compares with £233 million of credit provisions being released in 2021.

We expect house prices to fall back to 2021 levels over the year ahead as higher base rates dampen demand

Santander UK

Santander said mortgage borrower arrears remained low so far, but it saw a small number of business customers defaulting in the final months of 2022.

It came as Santander posted a 2% rise in pre-tax profits to £1.89 billion for 2022, with its net interest margin boosted by a string of rate hikes as the Bank of England battles to rein in soaring inflation.

Santander said: “We expect house prices to fall back to 2021 levels over the year ahead as higher base rates dampen demand.”

It added: “The outlook remains uncertain as inflation has eroded real disposable income with the prospects of a recession ahead.

“These challenges for households and businesses are expected to continue into 2023 and could impact credit quality.”

Its gloomy prediction for the housing market follows the latest figures from Nationwide Building Society on Wednesday showing the average UK property price fell by 0.6% in January.

Santander notched up £9.8 billion of net mortgage lending over 2022 – a big jump on the £7.5 billion seen over 2021, but said there was a steep pull back in demand for new loans in the final three months.

Mike Regnier, chief executive of Santander UK, said: “The global economic environment and rising cost of living have presented challenges for many of our customers and clients.”

“The end of 2022 saw a marked slowdown in mortgage lending and, with an uncertain economic outlook for 2023, we will continue to focus on a prudent approach to risk while we help people and businesses prosper.”

Its full-year figures also revealed it saw the cost of fraud and scams more than double last year, to £153 million from £74 million in 2021.

Across the wider Banco Santander group, cash put aside for loan losses also soared, with the Spanish group more than doubling provisions for bad debts to 3 billion euros (£2.7 billion) in the final quarter of last year.

But it reported a better-than-expected 1% year-on-year rise in underlying profit to 2.29 billion euros (£2 billion) in the fourth quarter, helped by higher interest rates across the UK and Europe.

Profits jumped 18% to a record 9.6 billion euros (£8.6 billion) over 2022 as a whole.


Source link

Leave a Comment

Your email address will not be published. Required fields are marked *