Santander braces for 10% plunge in house prices and rising borrower defaults
The UK bank put by £321 million for bad debts in 2022, including a further £65 million in the fourth quarter ahead of a likely recession.
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Your support makes all the difference.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 for bad debts 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 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.
Mike Regnier, chief executive of Santander UK, said there were signs that some borrowers are struggling, even if they are keeping up with their mortgage repayments for now.
Speaking to the PA news agency, he said the bank has seen a 12% increase in customers using their overdraft, as well as a 24% jump in customers using buy now, pay later products.
“That’s a worry for us, because we know these customers are more likely to enter arrears.
“We are keeping an eye on them and they’re some of the customers we’re contacting and reaching out to to offer support.”
There are also 400,000 of its borrowers coming off fixed-rate deals, who are due to face a £313 increase in repayments a month on average, while the bank has also seen energy bills double year-on-year for around 900,000 of its customers.
He said the bank is not expecting a flurry of repossessions, given that a resilient employment market should help borrowers weather the storm, but is taking a “prudent approach to risk”.
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 “marked slowdown” in demand for new loans in the final three months.
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.