The Santander UK boss says the bank is setting aside more money for potential defaults linked to the cost of living crisis after seeing an increase in the number of customers behind on mortgage and loan repayments .
Mike Regnier told the Guardian he was closely monitoring the ‘strain and pressure’ faced by customers due to the cost of living crisis, which has made it harder for some households to cope with the increased food and energy and financial bills. liabilities such as home loans.
This tension has been compounded by rising interest rates and economic uncertainty, which has resulted in higher monthly payments for borrowers exiting fixed rate mortgages.
Santander, the UK’s fourth largest mortgage lender, will raise its standard variable rate by 0.25 percentage point to 6.24% from early November, and its two-year fixed rate mortgages now command a rate of interest of 6.04%.
“We’ve seen a very slight increase, but not yet a significant increase, in the number of customers behind on mortgage payments or… card payments, or loans or overdrafts,” Regnier said.
Santander has started contacting vulnerable customers, referring them to counselors or having its own trained staff on standby. Its provisions could offset increases in its net interest margin, which is a key measure of profitability and explains the difference between what is charged for loans and paid for deposits.
Santander UK holds around 11% of the mortgage market, a £184bn portfolio of home loans in July. It set aside £66m for potential defaults in the second quarter, compared to £52m in the first three months of the year.
“Over the past two quarters, we have seen a slight increase in our net interest margin, but we have also seen an increase in the level of provisions we are taking compared to what we expect in terms of future losses.” , Regnier said.
While banks such as Santander UK increased provisions for potential defaults during the Covid crisis, most were eventually written off when pandemic restrictions were eased. With inflation hovering around 10%, lenders are once again having to increase their provisions in response to the deteriorating economic outlook.
“The Covid provisions that we had, we removed them and replaced them now with provisions related to the high inflation environment that we are currently facing,” Regnier said.
This is despite borrowers’ finances being stress tested, meaning banks will have checked that customers can afford to repay even if interest rates soar. However, banks such as Santander would typically have tested rates around 6-7%, a level that has now almost been reached. Last week, the average two-year fixed mortgage rate topped 6% for the first time since 2008.
“There are a lot of customers who… will pay a lot more than they did before, and that will come as a shock. And some people will find it very difficult. We will also be there to support them,” he said.
It comes as NatWest announced it was spending £2million to increase the number of dedicated debt advisers available to its business clients as small and medium-sized businesses also grapple with soaring costs.
The lender’s partnership with the charity StepChange will last two years and will give clients access to independent advice, and could result in referrals to other specialists, including tax accountants. It is the latest support measure to be rolled out for business customers affected by rising energy costs, even amid government subsidies.
Regnier’s comments came as Santander UK released data on Tuesday showing homebuyers were willing to pay a premium for energy-efficient homes. He said the energy crisis had changed priorities, even compared to the Covid pandemic, when borrowers sought bigger homes with gardens after nationwide lockdowns.
Its data showed homebuyers paid 9.4% more, or an average of £26,600, for homes that had been retrofitted with green features including better insulation, double-glazed windows or energy-efficient boilers .
“I would have thought it would have changed even more since we did this survey in May, because with the cost of energy rising, the importance for people to understand the energy efficiency of the place they ‘they are considering buying would be even more important in mind,’ the Santander boss said.