Nationwide will pay £340m directly into customer accounts for the first time, after a jump in deposits and higher interest rates drove annual profits up 40% to record highs.
Britain’s biggest building society has tended to use profits to offer better rates on savings, loans and mortgages for its members but on Friday it launched an inaugural programme that will distribute funds directly to customers, akin to shareholder payouts made by banks.
The payout, which amounts to about 15% of its annual profits, will benefit 3.4 million eligible customers, who will receive about £100 directly into their accounts in June.
The Nationwide chief executive, Debbie Crosbie, said plans for the payout were influenced by the recent rise in living costs: “We don’t see anyone else doing this, as such, and we think, in the cost of living crisis, it was really important to get people cash where we could, and we think it will have the most impact.”
It comes as Nationwide reported a 40% jump in annual pre-tax profits to £2.2bn, topping its previous record high of £1.6bn a year earlier. The building society benefited from the rise in UK interest rates, which have climbed to 4.5% over the past year and allowed lenders to charge customers more for loans and mortgages.
Nationwide also benefited from an increase in deposits, which rose by £9.1bn to £187bn, at a time when rival high street banks reported outflows due in part to growing competition in savings rates. Its overall market share also grew to 9.6% from 9.4% a year earlier.
However, a weaker housing market – which has been hit by rising interest rates and living costs – affected mortgage lending, which fell by £2.9bn to £33.6bn over the year.
Nationwide bosses said they were strategising around mortgage pricing, as they try to capture a larger portion of the market. They estimate that about 275,000 of their own customers will be coming off a fixed-rate deal over the next 12 months, and currently plan to offer new rates of about 4%.
That compares with the average two-year fixed rate of 5.35%. “We think that’s the right thing to do to protect our existing customers,” Nationwide’s director of retail, Stephen Noakes, said.
Unlike listed banks, building societies such as Nationwide are owned by their customers rather than shareholders and are meant to be run in a way that benefits those members. The lender’s bosses said they now plan to make payouts to members every year, provided it does not harm its financial position.
Crosbie said the distribution of profits “is the biggest statement yet about how we use our financial strength to benefit our members”.
To be eligible, members must use Nationwide as their main current account and have one other product – either a savings account or a mortgage – with a minimum £100 balance.
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The mutual has also announced the launch of a new two-year bond product that will pay out 4.75%, surpassing the Bank of England’s base rate.
Nationwide’s payouts come despite concerns over the UK economic outlook, which it said “remains highly uncertain”.
It said the cost of living crisis and higher interest rates for borrowers had put further pressure on household finances, hit consumer confidence, and would continue to weigh on house prices and the mortgage market throughout the second half of the year.
The building society put aside £765m to cover a potential increase in defaults by struggling customers over the past year, up £19m compared with a year earlier. However, it said the number of customers falling behind on payments was still low given that many were on fixed rates and few had high levels of debt to repay.
“The transition to higher interest payments is a challenge for households as they adjust their expenditure priorities. We will continue to support those borrowers who face payment difficulties,” it added.
