High street lender Santander UK has cautioned that higher-for-longer interest rates will take their toll on households and businesses as it revealed increases in some borrower arrears.
The Spanish-owned group said that while arrears overall remain at low levels, it had seen a slight uptick across mortgages, unsecured personal loans and overdrafts in recent quarters.
It cautioned that house prices are expected to fall by 7% this year and 2% in 2024, with mortgage applications down after a flurry of interest rate hikes and falling property values.
Santander said in its outlook: “We expect high-for-longer interest rates to have a more pronounced impact on households and businesses.”
But the group posted a 13% year-on-year rise in pre-tax profits to £558 million for the third quarter as it continues to be boosted by higher rates.
It put aside another £46 million in the quarter for credit impairment charges, taking its total to £204 million for the first nine months of the year so far.
But this was down from the £256 million set aside for the same nine-month period a year ago.
Mike Regnier, chief executive of Santander, said: “We have delivered a good set of results in spite of a challenging macroeconomic environment.”
He added: “Our clear strategy and prudent approach to risk, alongside the positive benefits of Banco Santander’s new operating model, will enable us to continue to support customers through the economic challenges ahead.”
The wider Banco Santander business in Spain has also been buoyed by higher rates, with net profits up 20% in the third quarter to a better-than-expected 2.9 billion euro (£2.5 billion).
Central bankers in the UK and globally have been raising rates to combat sky high inflation.
But rates were held at 5.25% in the UK in September and are seen remaining at that again in November amid signs that the hiking cycle may be ending, which is set to put pressure on bank profitability.
Santander said that its net interest margin (NIM) – an important measure showing the difference between what it earns from loans and pays out for deposits – was likely to peak in 2023.
It added that it had seen customer deposits reduce by £6 billion over the first nine months of 2023, but added the decline pared back to £200 million in the third quarter after attracting savers in September.
The group also saw a £10.1 billion fall in mortgage lending over the nine months, blaming it decision to “optimise the balance sheet given higher funding costs”.
