Santander warns over stalling mortgage market and weaker consumer spending

Santander UK has recorded a jump in its profits and income despite warning over a weaker housing market and inflation continuing to hit householders who face “difficult decisions” in the months ahead.

The bank made a pre-tax profit of £547 million in the first quarter of the year, up 11% from the £495 million made last year.

It also saw its total operating income increase by 11% to total £1.3 billion, which was largely driven by higher interest rates, the lender said.

But the bank flagged a decline in mortgage applications by 37% across the UK, and its mortgage balances reduced by more than £4 billion, amid a slowdown in the wider housing market.

House prices are likely to fall back by 10% this year, returning to 2021 levels, Santander predicted.

It also set aside £61 million in credit impairment charges, £9 million more than the previous year, due to the weaker UK economic environment, it revealed.

The charges cover expected losses for the bank if people cannot repay their loans.

Furthermore, Santander saw a decline in customer deposits across current accounts, savings and business banking accounts by around £5 billion, as savers hunted for the best rates on the market.

Santander UK chief executive Mike Regnier said the outlook for the rest of the year remains uncertain and households are likely to remain under pressure.

He said: “We have delivered a good set of results against a backdrop of turbulence in the global financial sector and ongoing challenges for the UK economy.

“We agree with the Bank of England that the regulatory regime means that UK banks are well-positioned to navigate such difficulties.

“Following rises in the base rate, we have seen the most competitive ISA period for several years and a further slowdown in the mortgage market.

“In this environment we continue to offer market-leading savings products and a broad range of mortgages.

“The economic outlook for 2023 remains uncertain with inflation predicted to remain above the 2% target, meaning many households and businesses will continue to face difficult decisions in the months ahead.”

The bank’s economists forecast economic scenarios for the years ahead, for economic growth, house prices, interest rates and unemployment.

Based on its worst-case scenario, where inflation remains persistently above the Bank of England’s 2% target, interest rates could peak at 6% this year, “further adding to the cost of living crisis and reducing consumer demand”.