Introduction

 

Unless otherwise stated, the income statement analysis compares the period from 5 April 2024 to 30 September 2024 to the corresponding six months of 2023 and balance sheet analysis compares the position at 30 September 2024 to the position at 4 April 2024.

 

Underlying profit

 

Profit before tax shown on a statutory and underlying basis is set out on page 9. The purpose of the underlying profit measure is to reflect management's view of the Group's underlying performance and to assist with like-for-like comparisons of performance across periods. Underlying profit is not designed to measure sustainable levels of profitability as that potentially requires exclusion of non-recurring items even though they are closely related to (or even a direct consequence of) the Group's core business activities.

 

Forward-looking statements

 

Certain statements in this document are forward-looking with respect to plans, goals and expectations relating to the future financial position, business performance and results of the Group. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, the Group can give no assurance that these expectations will prove to be an accurate reflection of actual results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Group including, amongst other things, UK domestic and global economic and business conditions, market-related risks such as fluctuation in interest rates and exchange rates, inflation/deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations involving the Society and/or within relevant industries, risks relating to sustainability and climate change, the policies and actions of regulatory authorities and the impact of tax or other legislation and other regulations in the jurisdictions in which the Group operates. The economic outlook remains uncertain and, as a result, the Group's actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements. Due to such risks and uncertainties, the Group cautions readers not to place undue reliance on such forward-looking statements.

 

The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

 

This document is not intended to, and does not constitute, represent or form part of any offer invitation or solicitation of any offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities or the solicitation of any vote or approval in any jurisdiction. No securities are being offered to the public by means of this document. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering to be made in the United States will be made by means of a prospectus that may be obtained from the Group and will contain detailed information about the Group and its management, as well as its financial statements.

 

Chief Executive's review

 

Record growth and value to members

 

Debbie Crosbie, Chief Executive, Nationwide Building Society, said:

 

"Nationwide delivered record first half growth in both mortgages and deposits, and record member value. Over the past 18 months, our mutual model has enabled us to provide over £3.5 billion in member value, including £729 million through the Nationwide Fairer Share Payment.

 

"Following our acquisition of Virgin Money on 1 October, we've recorded a gain of £2.3bn, as the value of net assets acquired is well above the price we paid. This gain provides significant headroom to cover our investment in integration, as well as in service and value. 

 

"Future profits generated by Virgin Money can now be used for the benefit of customers, rather than being paid to external shareholders."

 

Business and trading highlights for the period ended 30 September 2024

 

Record first half year growth in mortgages and deposits

·    Mortgage balances of £210.8bn (4 April 2024: £204.5bn), with record half year net lending of £6.3bn (H1 2023/24: £0.5bn). Market share of balances increased to 12.6% (4 April 2024: 12.3%).

·    Member deposit balances increased by £8.3bn (H1 2023/24: £4.2bn) to £201.7bn (4 April 2024: £193.4bn). This was a record increase for a first half year. Deposit market share was 9.6% (4 April 2024: 9.5%).

·    Continued growth in current account volumes, and a market share of 9.7%¹(February 2024: 9.7%).

 

Leading customer service, giving customers a choice in how they bank with us

·    First for customer satisfaction among our peer group for over 12 years, with a lead of 6.8%pts² (March 2024: lead of 5.5%pts).

·    We continue to have the largest single-brand branch network in the UK, supported by our Branch Promise - everywhere we have a branch, we promise to still be there until at least the start of 2028.

·    More than 35% of our new current accounts were opened in branches this half year.

 

Mutual model delivers record value to our members

·    Member financial benefit increased to £950m (H1 2023/24: £885m), from pricing and incentives that were better than the market average.

·    Distributed £385m through our Nationwide Fairer Share Payments to 3.85m eligible members in June 2024.

·    On average, interest rates on deposits were 30% higher than the market average, largely driven by our savings rates.

 

¹CACI's Current Account and Savings Database, Stock (August 2024).

²Lead at September 2024: 6.8%pts, March 2024: 5.5%pts. © Ipsos 2024, Financial Research Survey (FRS), for the 12 months ending 31 March 2013 to 12 months ending 30 September 2024. Results based on a sample of around 47,000 adults (aged 16+). The survey contacts around 51,000 adults (aged 16+) a year in total across Great Britain. Interviews were face to face, over the phone and online, taking into account (and weighted to) the overall profile of the adult population. The results reflect the percentage of extremely satisfied and very satisfied customers minus the percentage of customers who were extremely or very or fairly dissatisfied across those customers with a main current account, mortgage or savings. Those in our peer group are Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Santander and TSB. Prior to April 2017, those in our peer group were Barclays, Halifax, HSBC, Lloyds Bank (Lloyds TSB prior to April 2015), NatWest and Santander.

 

Robust financial performance and balance sheet strength

·    Underlying profit before tax decreased to £959m (H1 2023/24: £1,262m) and statutory profit before tax was £568m (H1 2023/24: £989m), primarily due to the profile of interest rates over the period and our choice to offer competitive rates. 

·    Total underlying income of £2,129m (H1 2023/24: £2,449m). Net interest margin of 1.50% (H1 2023/24: 1.66%), higher than H2 2023/24 net interest margin of 1.46%.

·    Credit impairment charges of £7m (H1 2023/24: £54m), reflecting the resilience of our lending.

·    Underlying costs of £1,154m (H1 2023/24: £1,115m).

·    CET1 ratio of 28.4% (4 April 2024: 27.1%) and leverage ratio of 6.7% (4 April 2024: 6.5%).

 

Making a meaningful impact across society

·    Helped 53,000 (H1 2023/24: 31,000) first time buyers into a home of their own.

·    Continued to commit 1% of pre-tax profits to good causes each year³, which for 2024/25 includes committing £9m to our three new charity partners, Centrepoint, Action for Children and Dementia UK, under our new Fairer Futures social impact strategy.

 

 

Acquisition of Virgin Money UK plc on 1 October 2024

 

Gain on acquisition of £2.3bn, resulting from a net asset value well in excess of the £2.8bn acquisition price.

·    Peer-leading combined group CET1 ratio of 19.6% and combined group leverage ratio of 5.4% at 1 October 2024, both comfortably above regulatory minimums.

·    A unique opportunity, underpinned by an exceptionally strong business case.

 

Positioning us to become the UK's first full-service mutual banking provider.

·    Acquisition broadens our product range to include business banking, which we intend to offer to more customers over time.

·    This will diversify our funding and strengthen us financially, enabling us to deliver even greater value for our customers, including through our Branch Promise, focus on customer service, and competitive deposit and lending rates.

 

Delivering scale and connecting us with one in three people in the UK.

·    Now the UK's second largest provider of mortgages⁴ and retail deposits, with total assets of over £370 billion.

·    Combined, we have £1 in every £6 of mortgage balances and hold £1 in every £8 of retail deposits in the UK.

·    Now have an extensive network of 696 branches across the UK.

 

A long-term, measured and fully funded approach to integration.

·    Acquired a profitable business so can take a longer-term approach to managing the Virgin Money business, with gradual integration following an initial 18-month strategic review.

·    Gain on acquisition expected to provide significant headroom to cover costs associated with integration, investment in customer service and delivery of value under our mutual model.

·    Future profits generated by Virgin Money will be fully retained within the Group, and available for investing in improving services and value for our customers, rather than being paid to shareholders.

 

The results for the period ended 30 September 2024 do not include the impacts of the Virgin Money acquisition. Further information is included in note 17 to the condensed consolidated interim financial statements, on page 89.

 

³The 1% is calculated based on average pre-tax profits over the previous three years.

⁴UK Finance 2023 balance database published on 31 July 2024 (latest available data).

 

Strategy update

 

More rewarding relationships: We will create deeper, lifelong relationships with our customers, that provide the best value in banking.

 

We delivered £950 million of member financial benefit, from pricing and incentives that were better than the market average, largely driven by our savings rates. In addition, we distributed £385 million through the Nationwide Fairer Share Payment in June 2024. Over the half year, we supported a record 39,000 (H1 2023/24: 14,700) students with our competitive FlexStudent current account, more than double that of the previous period. We continue to focus on supporting first time buyers, and in September 2024, we extended our Helping Hand mortgage to enable them to borrow six times their income, up to 33% more than through standard mortgages. We also increased the maximum loan to value available for purchasing a new-build house, from 85% to 90%.

Simply brilliant service: We will provide value beyond rates, with distinctive, personalised service our customers can trust, at every touchpoint.

 

We have the largest single-brand branch network in the UK, supported by our Branch Promise⁵. More than 35% of our new current accounts were opened in branches this half year, demonstrating the value of our branch network to customers. Our branches provide customers with choice in the way they can interact with us, alongside our digital channels, telephones, 24/7 online chat and dedicated cost-of-living helpline. We added further functionality to our new banking app, that launched in March 2024.

 

Beacon for mutual good: We want to have a meaningful impact on our customers, colleagues, communities and society, by driving fairer banking practices and positive change.

 

We launched our new Fairer Futures social impact strategy, helping to tackle three of the biggest issues we see in society today - youth homelessness, families living in poverty and people living with dementia. We are headline partner to three key charities: Centrepoint, Action for Children, and Dementia UK, who will help us make a meaningful difference across these important causes. As part of this, we are rolling out dementia clinics in 200 of our branches.

 

Continuous improvement: We will be focused, fit and fast, and simplify our processes and ways of working to deliver for the benefit of our customers, while retaining resilient controls that protect our customers and their money.

 

We continue to drive greater efficiency across our operations and improve our customer experiences. We are enabling faster mortgage offers for customers through our new automated income verification and valuation tools, and we continue to streamline our mortgage advice service, reducing interview times for customers whilst still ensuring appropriate products and good outcomes.

 

Looking forward

 

The economic outlook remains uncertain, and the interest rate outlook means we expect to have passed peak profitability. However, lower interest rates and resilience in real earnings are supporting consumer finances which, if maintained, should support a strengthening in housing market activity and overall deposit growth. The credit quality of our lending portfolios remains strong, and our capital resources are robust.

 

Following the acquisition of Virgin Money, we will use our ongoing financial strength to deliver even greater value to Nationwide and Virgin Money customers, through competitive rates, focus on customer service, and our unique Branch Promise.

 

Debbie Crosbie

Chief Executive

 

⁵ All our 605 Nationwide branches will remain open until at least 1 January 2028. There may be exceptional circumstances outside of our control that mean we have to close a branch. But we will only do this if we do not have another workable option. We have now extended our Branch Promise to include Virgin Money's 91 branches, following the acquisition on 1 October 2024.

Performance summary

	Half year to 30 September 2024		Half year to 30 September 2023				30 September		4 April
							2024		2024
						Balance sheet	£bn	%	£bn	%
Financial performance	£m		£m			Total assets	282.4		271.9
Total underlying income	2,129		2,449			Loans and advances to customers	220.0		213.4
Underlying administrative expenses	1,154		1,115			Mortgage balances/market share (note iv)	210.8	12.6	204.5	12.3
Underlying profit before tax (note i)	959		1,262			Member deposits/market share (note ii)	201.7	9.6	193.4	9.5
Statutory profit before tax	568		989
						Asset quality	%		%
Mortgage Lending	£bn	%	£bn	%		Residential mortgages
Group residential - gross/market share	17.6	14.1	12.1	10.5		Proportion of residential mortgage accounts 3 months+ in arrears	0.42		0.41
Group residential - net	6.3		0.5
Average loan to value of new residential mortgages (by value)	73		71			Average indexed loan to value (by value)	55		55
Deposit balance movement	£bn	%	£bn	%		Consumer banking
Member deposits balance movement/market share (note ii)	8.3	15.0	4.2	7.8		Proportion of customer balances with amounts past due more than 3 months (excluding charged off balances)	1.24		1.36
Key ratios	%		%
Underlying cost income ratio (note iii)	54.2		45.5			Key ratios	%		%
Statutory cost income ratio	54.9		44.2			Capital
Net interest margin	1.50		1.66			Common Equity Tier 1 ratio	28.4		27.1
						Leverage ratio	6.7		6.5
						Other balance sheet ratios
						Liquidity Coverage Ratio (note v)	186		191
						Wholesale funding ratio (note vi)	22.0		22.5

Notes:

i.  Underlying profit before tax represents management's view of underlying performance. A reconciliation of statutory to underlying profit before tax is included in the Financial review on page 9. The following items are adjusted from statutory profit before tax to arrive at underlying profit before tax:

·     Member reward payments;

·     Gains or losses from derivatives and hedge accounting; and

·     Costs directly associated with the acquisition of Virgin Money.

ii. Member deposits include current account credit balances.

iii.  The underlying cost income ratio represents management's view of underlying performance. Further information is included in the Financial review on page 8.

iv.  Mortgage balances are presented gross of credit provisions.

v. The Liquidity Coverage Ratio represents a simple average of the ratios for the last 12 month ends.

vi.  The wholesale funding ratio includes all balance sheet sources of funding (including securitisations).

Financial review

 

Muir Mathieson, Chief Financial Officer, Nationwide Building Society, said:

 

"We continue to deliver a robust financial performance. Underlying profit has decreased by 24.0% to £959 million, primarily due to the profile of interest rates over the period and our choice to offer competitive rates. We have delivered record levels of financial value back to our members, a combined £1,335 million, comprising £950 million of member financial benefit through better pricing and incentives than the market average and a Nationwide Fairer Share payment of £385 million to eligible members.

 

"Our competitive pricing and market leading service have supported robust growth in our deposit and mortgage balances.

 

"On 1 October we successfully completed the acquisition of Virgin Money. We believe that the combined Group will enhance Nationwide's profit resilience and will allow for more customers to benefit from a broadened range of products and services. Following the acquisition of Virgin Money on 1 October, our combined Group CET1 ratio was 19.6% and our combined Group leverage ratio was 5.4%."

 

Financial highlights

   

·    Underlying profit before tax for the half year to 30 September 2024 decreased to £959 million (H1 2023/24: £1,262 million), given anticipated movements in Bank rate and continued reduction in overall mortgage margins.  A decrease in income and marginally higher costs were partially offset by a reduction in charges for credit impairments. Statutory profit before tax was £568 million (H1 2023/24: £989 million), after reflecting the Nationwide Fairer Share Payment.   ·    Total underlying income decreased by £320 million, primarily due to a reduction in H1 2024/25 net interest margin to 1.50% (H1 2023/24: 1.66%).   ·    A combined £1,335 million (H1 2023/24: £1,229 million) of value has been delivered to members. This comprises member financial benefit, which increased to £950 million (H1 2023/24: £885 million) supported by better pricing and incentives than the market average, and the Nationwide Fairer Share Payment to eligible members in June 2024 of £385 million (H1 2023/24: £344 million).   ·    Member deposit balances increased by £8.3 billion to £201.7 billion (4 April 2024: £193.4 billion), with our market share of balances increasing to 9.6% (4 April 2024: 9.5%).   ·    Mortgage balances increased to £210.8 billion (4 April 2024: £204.5 billion), with our market share of balances increasing to 12.6% (4 April 2024: 12.3%).	·    Underlying administrative expenses increased by £39 million to £1,154 million (H1 2023/24: £1,115 million).   ·    Credit impairment charges were lower at £7 million (H1 2023/24: £54 million), reflecting the resilience of our lending, whilst continuing to hold provisions for economic uncertainty and affordability pressures on borrowers. Mortgage arrears have remained broadly stable and remain well below the market average.   ·    As at 30 September 2024, CET1 and leverage ratios increased to 28.4% and 6.7% (4 April 2024: 27.1% and 6.5%) respectively.   Following the acquisition of Virgin Money   ·    As at 1 October 2024, the combined Group CET1 ratio was 19.6% and combined Group leverage ratio was 5.4%. This reflects the larger combined balance sheet and the impact of a gain on acquisition of £2.3 billion resulting from the difference between the fair value of net assets acquired and the purchase consideration of £2.8 billion.		Underlying profit before tax: £959m (H1 2023/24: £1,262m)
			Statutory profit before tax: £568m (H1 2023/24: £989m)
			Leverage ratio 6.7% (4 April 2024: 6.5%)

 

The results are prepared in accordance with International Financial Reporting Standards (IFRSs). Results presented on an underlying basis represent management's view of underlying performance. A reconciliation of underlying results to the statutory results, along with associated ratios, is shown below.

 

Income statement

 

Reconciliation of statutory to underlying results
		Half year to 30 September 2024			Half year to 30 September 2023
		Statutory basis	Adjustments	Underlying basis	Statutory basis	Adjustments	Underlying basis
		£m	£m	£m	£m	£m	£m
Net interest income		2,076	-	2,076	2,337	-	2,337
Net other income (note i)		73	(20)	53	183	(71)	112
Total income		2,149	(20)	2,129	2,520	(71)	2,449
Administrative expenses (note i)		(1,180)	26	(1,154)	(1,115)	-	(1,115)
Impairment charge on loans and advances to customers		(7)	-	(7)	(54)	-	(54)
Provisions for liabilities and charges		(9)	-	(9)	(18)	-	(18)
Profit before member reward payments and tax		953	6	959	1,333	(71)	1,262
Member reward payments (note i)		(385)	385	-	(344)	344	-
Profit before tax		568	391	959	989	273	1,262
Taxation		(147)	-	(147)	(267)	-	(267)
Profit after tax		421	391	812	722	273	995
Total costs (administrative expenses)		(1,180)	26	(1,154)	1,115	-	1,115
Total income		2,149	(20)	2,129	2,520	(71)	2,449
Cost to income ratio		54.9%		54.2%	44.2%		45.5%

Note:

i.  Adjustments are made to exclude the following items from underlying profit before tax as management does not consider them to be representative of underlying business performance:

·     Gains or losses from derivatives and hedge accounting, which are presented within net other income;

·     Transaction-related costs arising from the acquisition of Virgin Money UK plc, which are presented within administrative expenses; and

·     Member reward payments, representing discretionary payments to eligible members of the Society which may be determined by the Board from time to time, depending on the financial strength of the Society.

Total income and net interest margin   Net interest income decreased by £261 million to £2,076 million (H1 2023/24: £2,337 million), with net interest margin decreasing to 1.50% (H1 2023/24: 1.66%). The decrease in net interest income is primarily driven by the timing of changes in Bank rate and continued reduction in overall mortgage margins. Net other income has reduced by £59 million to £53 million (H1 2023/24: £112 million), predominantly reflecting lower gains from the disposal of treasury assets and lower investment income following the disposal of the Society's investment advice business in February 2024.		Net interest margin: 1.50% (H1 2023/24: 1.66%)

Member financial benefit

 

As a building society, we seek to maintain Nationwide's financial strength whilst providing value to our members through pricing, products and service. Through member financial benefit, we measure the additional financial value for members from the competitive mortgage, savings and banking products that we offer compared to the market average. Member financial benefit is calculated by comparing, in aggregate, Nationwide's average interest rates and incentives to the market, predominantly using market data provided by the Bank of England and CACI, alongside internal calculations. The value for individual members will depend on their circumstances and product choices. More information on how we calculate member financial benefit can be found in our Annual Report and Accounts 2024.

For the half year ended 30 September 2024, we delivered member financial benefit of £950 million (H1 2023/24: £885 million). The increase is due to our strong savings rates and mortgage products which seek to provide good value to members.

 

Member reward payments

 

The Board approved a Nationwide Fairer Share payment in May 2024 as part of our ongoing commitment to reward our members. During the period, a Nationwide Fairer Share payment of £385 million (H1 2023/24: £344 million) was paid to eligible members who had a qualifying current account plus either qualifying savings or a qualifying mortgage as at 31 March 2024. This payment is in addition to delivering the £950 million of member financial benefit outlined above.

 

Administrative expenses

 

Underlying administrative expenses have increased by £39 million to £1,154 million (H1 2023/24: £1,115 million), with inflationary increases partially mitigated by efficiencies within strategic investment programmes and cost reductions as a result of the disposal of the Society's investment advice business in February 2024.

 

An additional £26 million of administrative expenses have been recognised in H1 2024/25 (H1 2023/24: £nil) which directly relate to the acquisition of Virgin Money. These costs are excluded from underlying profit.

 

Impairment charge on loans and advances to customers

 

Impairment charge/(release) (note i)
	Half year to 30 September 2024	Half year to 30 September 2023
	£m	£m
Residential lending	(4)	27
Consumer banking	13	22
Retail lending	9	49
Commercial	(2)	5
Impairment charge	7	54

 

Note:

i.  Impairment charge/(release) represents the net amount recognised in the income statement, rather than amounts written off during the period.

 

The net impairment charge for the period has reduced to £7 million (H1 2023/24: £54 million). In the period, balance sheet provisions have decreased due to reductions in the provisions held for economic uncertainty and associated affordability risks. Residential mortgage arrears have remained broadly stable and remain well below the industry average, with consumer banking arrears reducing slightly. More information regarding critical accounting judgements, and the forward-looking economic information used in impairment calculations, are included in note 8 to the condensed consolidated interim financial statements.

 

Provisions for liabilities and charges

 

Provisions are held to cover the costs of remediation and redress in relation to historical quality control procedures, past sales and administration of customer accounts, and other legal and regulatory matters. The charge of £9 million (H1 2023/24: £18 million) reflects updates to estimates of the amounts that will be paid in relation to these matters.

Taxation

 

The main UK rate of corporation tax remained at 25% (4 April 2024: 25%) and the banking surcharge remained at 3% (4 April 2024: 3%). The tax charge for the period of £147 million (H1 2023/24: £267 million) represents an effective tax rate of 25.9% (H1 2023/24: 27.0%) and includes the banking surcharge of £11 million (H1 2023/24: £24 million), which arises on Society profits. The effective tax rate is higher than the statutory UK corporation tax rate primarily due to the banking surcharge. Further information is provided in note 9 to the condensed consolidated interim financial statements.

 

Balance sheet

 

Assets

 

Total assets have increased by 3.8% to £282.4 billion at 30 September 2024 (4 April 2024: £271.9 billion). This increase is predominantly due to higher residential mortgage balances.

 

Assets						12-month average Liquidity Coverage Ratio (note ii): 186% (4 April 2024: 191%)
	30 September 2024		4 April 2024
	£m	%	£m	%
Cash	28,800		23,817
Residential mortgages (note i)	210,842	95	204,467	95
Consumer banking	4,293	2	4,263	2
Commercial lending	5,662	3	5,491	3
	220,797	100	214,221	100
Impairment provisions	(750)		(781)
Loans and advances to customers	220,047		213,440
Other financial assets	30,752		31,970
Other non-financial assets	2,753		2,690
Total assets	282,352		271,917
Asset quality	%		%
Residential mortgages (note i):
Proportion of residential mortgage accounts more than 3 months in arrears	0.42		0.41
Average indexed loan to value (by value)	55		55
Consumer banking:
Proportion of customer balances with amounts past due more than 3 months (excluding charged off balances)	1.24		1.36

Notes:

i.  Residential mortgages include owner-occupied, buy to let and legacy lending.

ii. This represents a simple average of the Liquidity Coverage Ratio (LCR) for the last 12 month ends. The LCR ensures that sufficient high-quality liquid assets are held to survive a short-term severe but plausible liquidity stress.

 

Cash

 

Cash is held by our Treasury function for liquidity purposes, with the £5.0 billion increase to £28.8 billion (4 April 2024: £23.8 billion) predominantly due to increases in retail savings balances.

 

The average Liquidity Coverage Ratio over the 12 months ended 30 September 2024 decreased to 186% (12 months ended 4 April 2024: 191%), reflecting lower average liquid asset balances due to repayments of the Bank of England's Term Funding Scheme with additional incentives for SME's (TFSME). Liquidity continues to be managed against internal risk appetite, which is more prudent than regulatory requirements and, under the most severe internal 30 calendar day stress test, the average liquid asset buffer remains robust. Further details are included in the Liquidity and funding risk section of the Risk report.

 

Residential mortgages

 

Total gross mortgage lending was higher than in the prior period at £17.6 billion (H1 2023/24: £12.1 billion) and our market share of gross advances increased to 14.1% (H1 2023/24: 10.5%). Net lending in the period was £6.3 billion (H1 2023/24: £0.5 billion), increasing our market share of balances to 12.6%. Net lending has been supported by our continued focus on retention through highly competitive products provided to existing customers. Owner-occupied mortgage balances increased to £166.2 billion (4 April 2024: £161.0 billion) and buy to let and legacy mortgage balances increased slightly to £44.7 billion (4 April 2024: £43.5 billion).

 

Arrears have remained broadly stable, with cases more than three months in arrears representing 0.42% (4 April 2024: 0.41%) of the total portfolio. The level of arrears remains well below the industry average of 0.93% (4 April 2024: 0.94%). Impairment provision balances have decreased to £317 million (4 April 2024: £321 million).

 

Consumer banking

 

Consumer banking balances were £4.3 billion (4 April 2024: £4.3 billion). Consumer banking comprises personal loan balances of £2.4 billion (4 April 2024: £2.4 billion), credit card balances of £1.6 billion (4 April 2024: £1.6 billion) and overdrawn current account balances of £0.3 billion (4 April 2024: £0.3 billion).

 

Arrears have reduced slightly during the period, with balances more than three months in arrears (excluding charged off accounts) representing 1.24% (4 April 2024: 1.36%) of the total portfolio. Provision balances reduced to £409 million (4 April 2024: £436 million), primarily due to a reduction in the adjustments held for economic uncertainty.

 

Commercial lending

 

During the period, commercial lending balances remained broadly stable at £5.7 billion (4 April 2024: £5.5 billion). The overall portfolio includes registered social landlords with balances of £4.7 billion (4 April 2024: £4.4 billion), project finance with balances of £0.5 billion (4 April 2024: £0.5 billion), commercial real estate balances of £0.2 billion (4 April 2024: £0.3 billion) and a fair value adjustment for micro hedged risk of £0.3 billion (4 April 2024: £0.3 billion). Both project finance and commercial real estate books are closed to new lending.

 

Impairment provision balances remained stable at £24 million (4 April 2024: £24 million).

 

Other financial assets

 

Other financial assets of £30.8 billion (4 April 2024: £32.0 billion) comprise investment assets held by Nationwide's Treasury function amounting to £25.5 billion (4 April 2024: £26.5 billion), loans and advances to banks and similar institutions of £1.8 billion (4 April 2024: £2.5 billion), derivatives with positive fair values of £5.3 billion (4 April 2024: £6.3 billion) and negative fair value adjustments for portfolio hedged risk of £(1.8) billion (4 April 2024: £(3.3) billion). Derivatives largely comprise interest rate and foreign exchange contracts which economically hedge financial risks inherent in Nationwide's lending and funding activities.

 

Members' interests, equity and liabilities

 

Members' interests, equity and liabilities				Wholesale funding ratio: 22.0% (4 April 2024: 22.5%)
	30 September 2024	4 April 2024
	£m	£m
Member deposits	201,725	193,366
Debt securities in issue	34,264	29,599
Other financial liabilities	26,520	29,817
Other liabilities	1,138	1,449
Total liabilities	263,647	254,231
Members' interests and equity	18,705	17,686
Total members' interests, equity and liabilities	282,352	271,917

 

Member deposits

Member deposit balances grew by £8.3 billion to £201.7 billion (4 April 2024: £193.4 billion). The increase in deposit balances is due to growth in savings balances of £6.4 billion (H1 2023/24: £5.1 billion) supported by competitive fixed rate products, including the Member Exclusive Bond, and increased levels of accrued and capitalised interest due to higher average savings rates. Credit balances on current accounts increased by £2.0 billion (H1 2023/24: £0.9 billion reduction). Nationwide's market share of deposit balances increased to 9.6%.

 

Debt securities in issue and other financial liabilities

 

Debt securities in issue relate to wholesale funding but exclude subordinated debt which is included within other financial liabilities. Balances increased to £34.3 billion (4 April 2024: £29.6 billion), reflecting secured and unsecured wholesale funding issuances during the period. Other financial liabilities decreased to £26.5 billion (4 April 2024: £29.8 billion) primarily due to repayment of £4.0 billion of drawings from the Bank of England's Term Funding Scheme with additional incentives for SMEs (TFSME). Nationwide's wholesale funding ratio decreased to 22.0% (2024: 22.5%). Further details are included in the Liquidity and funding risk section of the Risk report.

 

Members' interests and equity

 

Members' interests and equity have increased to £18.7 billion (4 April 2024: £17.7 billion) largely as a result of retained profits.

 

Statement of comprehensive income

Statement of comprehensive income (note i)
	Half year to 30 September 2024	Half year to 30 September 2023
	£m	£m
Profit after tax	421	722
Net remeasurement of pension obligations	-	(109)
Net movement in revaluation reserve	-	-
Net movement in cash flow hedge reserve	(30)	(13)
Net movement in other hedging reserve	9	9
Net movement in fair value through other comprehensive income reserve	(42)	4
Total comprehensive income	358	613

 

Note:

i.  Movements are shown net of related taxation. Gross movements are set out in the condensed consolidated interim financial statements on page 64.

 

Capital structure

 

Nationwide's capital position remains strong, with both the Common Equity Tier 1 (CET1) ratio and leverage ratio comfortably above regulatory capital requirements of 12.8% and 4.3% respectively. The CET1 ratio increased to 28.4% (4 April 2024: 27.1%) and the leverage ratio increased to 6.7% (4 April 2024: 6.5%). The capital disclosures included in this report are in line with UK Capital Requirements Directive V (UK CRD V) with IFRS 9 transitional arrangements included. In addition, the disclosures are on a consolidated Nationwide Group basis, including all subsidiary entities but excluding the recent acquisition of Virgin Money, which occurred after the balance sheet date.

 

Capital structure
	30 September 2024	4 April 2024
	£m	£m
Capital resources
CET1 capital	15,087	14,798
Tier 1 capital	17,170	16,134
Total regulatory capital	18,323	17,808
Capital requirements
Risk weighted assets (RWAs)	53,067	54,628
Leverage exposure	255,315	249,263
UK CRD V capital ratios	%	%
CET1 ratio	28.4	27.1
Leverage ratio	6.7	6.5

 

The CET1 ratio increased to 28.4% (4 April 2024: 27.1%) as a result of an increase in CET1 capital of £0.3 billion and a decrease in RWAs of £1.6 billion. The CET1 capital resources increase was driven by £0.4 billion profit after tax, partially offset by £0.1 billion of capital distributions. The RWA movement was predominantly driven by a £3.0 billion reduction in mortgage Internal Ratings Based (IRB) temporary model adjustments which were updated to align with Nationwide's latest version of the Hybrid IRB mortgage models. These models have now been approved by the Prudential Regulation Authority. The reduction was partially offset by an increase in RWAs driven by increased residential mortgage balances.

 

The leverage ratio increased to 6.7% (4 April 2024: 6.5%), with Tier 1 capital increasing by £1.0 billion as a result of the CET1 capital movements referenced above and an issuance of Additional Tier 1 (AT1) capital of £0.7 billion in the period. Partially offsetting the impact of this was an increase in leverage exposure of £6.1 billion, predominantly due to increased residential mortgage balances. Nationwide intends to redeem a £0.6 billion AT1 instrument in December 2024. Excluding the repaid AT1 instrument the leverage ratio would be 6.5%. Leverage requirements continue to be Nationwide's binding Tier 1 capital constraint, as the combination of minimum and regulatory buffer requirements are in excess of the risk-based equivalent.

 

As at 1 October 2024, following the acquisition of Virgin Money, the combined group CET1 ratio was 19.6% and the combined group leverage ratio was 5.4%. This reflects the larger combined balance sheet and the impact of a gain on acquisition of £2.3 billion resulting from the difference between the fair value of the net assets acquired and the purchase consideration of £2.8 billion. Excluding the £0.6 billion AT1 instrument being repaid in December, the combined group leverage ratio would be 5.2%.

 

Further details of the capital position and future regulatory developments are described in the Capital risk section of the Risk report.

 

Risk report

Contents

 

	Page
Introduction	16
Emerging risks	16
Principal risks and uncertainties	17
Credit risk
Overview	18
Residential mortgages	21
Consumer banking	34
Commercial lending	41
Treasury assets	45
Liquidity and funding risk	50
Capital risk	57
Market risk	61

 

Introduction

 

This report provides information on developments during the period in relation to the risks Nationwide's business is exposed to, and how those risks are managed. This information supports, and should be read in conjunction with, the material found in the Risk report in the Annual Report and Accounts 2024. Where there has been no change to the approach to managing risks, or there has been no material change to the relevant risk environment from that disclosed at year end, this information has not been repeated.

 

Nationwide acquired Virgin Money UK plc on 1 October 2024, following regulatory approval. Whilst risks associated with the acquisition and integration have been identified and evaluated as part of our initial assessment, these do not materially alter the overall risk profile set out in the Annual Report and Accounts 2024. Work is underway to enhance existing risk management methodologies to ensure the robust management of risks associated with integration. As both organisations are UK regulated entities with a UK-focused customer base, it is anticipated that there will be close alignment between the risk management structures of the two organisations.

 

Emerging risks

 

Emerging risks are managed through the process outlined in the Risk overview section of the Annual Report and Accounts 2024 and remain broadly unchanged from those reported there. The external environment continues to present the most significant threats to the delivery of the Group's strategy. Key developments in the macroeconomic and geopolitical environment since 4 April 2024 are described below:

 

·    Macroeconomic conditions are stable. Recent OECD forecasts for the UK economy show a more positive outlook and the new government has signaled several measures to boost growth in the domestic economy. Bank rate has started to reduce, although persistent core inflation has meant only a modest decrease to date. The higher rates customers are now paying on their mortgages may exacerbate existing pressure on their finances, impacting both the housing market and mortgage trading volumes. Whilst affordability pressures remain, and some customers continue to experience higher interest rates as they renew their mortgages, these factors are adequately reflected in the assumptions used in our provisioning calculations.

 

·    Geopolitical tensions remain, with ongoing conflict in Europe and the Middle East. Any escalations in these conflicts, combined with shifts in domestic public policy, or changes to international governments' priorities and foreign relations, have the potential to put pressure on global supply chains and disrupt markets, further impacting our customers' finances through renewed inflationary pressures and challenging economic conditions more generally.

 

The following internal and external risks, which were highlighted in the Annual Report and Accounts 2024, have not materially changed since 4 April 2024:

 

·    Climate change

·    Cyber

·    Emergent technologies

·    Technology and resilience

Principal risks and uncertainties

 

Nationwide operates an Enterprise Risk Management Framework (ERMF), which ensures it remains safe and secure for its customers. The principal risks set out below are the key risks relevant to Nationwide's business model and achievement of its strategic objectives.

 

The principal risk categories and their definitions remain unchanged from those set out in the Annual Report and Accounts 2024 and are as follows:

 

·    Credit risk

·    Liquidity and funding risk

·    Capital risk

·    Market risk

·    Pension risk

·    Business risk

·    Operational and conduct risk

·    Model risk

 

Information on key developments in relation to the principal risks above are included within this report, except for pension, business, operational and conduct and model risk, where there have been no significant developments in the period.

 

Credit risk - Overview

 

Credit risk is the risk of loss as a result of a customer or counterparty failing to meet their financial obligations. Credit risk encompasses:

 

·    borrower/counterparty risk - the risk of loss arising from a borrower or counterparty failing to pay, or becoming increasingly likely not to pay the interest or principal on a loan, or on a financial product, or for a service, on time;

·    security/collateral risk - the risk of loss arising from deteriorating security/collateral quality;

·    concentration risk - the risk of loss arising from insufficient diversification of region, sector, counterparties or other significant factor; and

·    refinance risk - the risk of loss arising when a repayment of a loan or other financial product occurs later than originally anticipated.

 

Nationwide manages credit risk for the following portfolios:

 

Portfolio	Definition
Residential mortgages	Loans secured on residential property
Consumer banking	Unsecured lending comprising current account overdrafts, personal loans and credit cards
Commercial lending	Loans to registered social landlords, Private Finance Initiative projects, and commercial real estate lending
Treasury	Treasury liquidity, derivatives and investment portfolios

 

Further detail regarding the scope of Nationwide's credit risks and how they are managed, together with information on the calculation of impairment provisions based on expected credit losses (ECLs), is included within the Annual Report and Accounts 2024.

 

Developments in the period

 

During the period to 30 September 2024, the UK has seen Bank rate reduce by 25 basis points but remain elevated, whilst the rate of inflation has reduced towards the Bank of England's 2% target. The cost of borrowing has reduced, which has slightly eased affordability pressures and prompted a recovery in the housing market, with 3.2% annual house price growth to September 2024. Average house prices are now around 2% below the all-time high recorded in summer 2022.

 

Residential mortgage arrears have remained broadly stable and remain well below the industry average. Consumer banking arrears have reduced slightly and remain at historically low levels.

 

Provisions have decreased to £750 million (4 April 2024: £781 million) and include a modelled adjustment for economic uncertainty totalling £105 million (4 April 2024: £145 million). This modelled adjustment captures the affordability risks caused by recent inflation and elevated mortgage interest rates, combined with adjustments to model inputs relating to improvements in borrower credit quality which are expected to reverse.

 

Outlook

 

The Group expects modest growth in the UK economy, with inflation close to its target level in the years ahead. House prices are expected to continue to grow steadily, whilst Bank rate is forecast to be reduced gradually over the next 18 months, with a 25-basis points reduction already made in November 2024. The outlook remains uncertain, given ongoing heightened geopolitical tensions and the emerging policies of the new UK Government. To date, borrowers have remained resilient to affordability pressures, and whilst arrears are expected to rise from their current levels, they are expected to remain relatively low in the long run.

 

Nationwide remains vigilant to the uncertainties within the geopolitical and economic landscape, assessing its impact on borrowers and the credit risks affecting our lending portfolios to ensure appropriate actions are taken to support our customers.

 

Credit risk - Overview (continued)

 

Maximum exposure to credit risk

 

Nationwide's maximum exposure to credit risk at 30 September 2024 was £295 billion (4 April 2024: £283 billion).

 

Credit risk largely arises from loans and advances to customers, which account for 80% (4 April 2024: 80%) of Nationwide's total credit risk exposure. Within this, the exposure relates primarily to residential mortgages, which account for 95% (4 April 2024: 95%) of total loans and advances to customers. Nationwide's residential mortgage portfolios comprise high-quality assets with low levels of credit losses.

 

In addition to loans and advances to customers, Nationwide is exposed to credit risk on all other financial assets. For all financial assets recognised on the balance sheet, the maximum exposure to credit risk represents the balance sheet carrying value after allowance for impairment, plus off-balance sheet commitments. For off-balance sheet commitments, the maximum exposure is the maximum amount that Nationwide would have to pay if the commitments were to be called upon. For loan commitments and other credit-related commitments that are irrevocable over the life of the respective facilities, the maximum exposure is the full amount of the committed facilities.

 

Maximum exposure to credit risk
30 September 2024	Gross balances	Impairment provisions	Carrying value	Commitments (note i)	Maximum credit risk exposure	% of total credit risk exposure
	£m	£m	£m	£m	£m	%
Amortised cost loans and advances to customers:
Residential mortgages	210,804	(317)	210,487	14,081	224,568	76
Consumer banking	4,293	(409)	3,884	31	3,915	1
Commercial lending	5,344	(24)	5,320	1,644	6,964	3
Fair value adjustment for micro hedged risk (note ii)	316	-	316	-	316	-
	220,757	(750)	220,007	15,756	235,763	80
FVTPL loans and advances to customers:
Residential mortgages (note iii)	38	-	38	-	38	-
Commercial lending	2	-	2	-	2	-
	40	-	40	-	40	-
Other items:
Cash	28,800	-	28,800	-	28,800	10
Loans and advances to banks and similar institutions	1,772	-	1,772	-	1,772	-
Investment securities - FVOCI	25,477	-	25,477	-	25,477	9
Investment securities - Amortised cost	_	-	-	-	-	-
Investment securities - FVTPL	4	-	4	5	9	-
Derivative financial instruments	5,331	-	5,331	-	5,331	2
Fair value adjustment for portfolio hedged risk (note ii)	(1,832)	-	(1,832)	-	(1,832)	(1)
	59,552	-	59,552	5	59,557	20
Total	280,349	(750)	279,599	15,761	295,360	100

 

Credit risk - Overview (continued)

 

Maximum exposure to credit risk
4 April 2024	Gross balances	Impairment provisions	Carrying value	Commitments (note i)	Maximum credit risk exposure	% of total credit risk exposure
	£m	£m	£m	£m	£m	%
Amortised cost loans and advances to customers:
Residential mortgages	204,427	(321)	204,106	11,526	215,632	76
Consumer banking	4,263	(436)	3,827	18	3,845	2
Commercial lending	5,139	(24)	5,115	1,795	6,910	2
Fair value adjustment for micro hedged risk (note ii)	350	-	350	-	350	-
	214,179	(781)	213,398	13,339	226,737	80
FVTPL loans and advances to customers:
Residential mortgages (note iii)	40	-	40	-	40	-
Commercial lending	2	-	2	-	2	-
	42	-	42	-	42	-
Other items:
Cash	23,817	-	23,817	-	23,817	9
Loans and advances to banks and similar institutions	2,478	-	2,478	-	2,478	1
Investment securities - FVOCI	26,522	-	26,522	-	26,522	9
Investment securities - Amortised cost	4	-	4	-	4	-
Investment securities - FVTPL	6	-	6	5	11	-
Derivative financial instruments	6,290	-	6,290	-	6,290	2
Fair value adjustment for portfolio hedged risk (note ii)	(3,330)	-	(3,330)	-	(3,330)	(1)
	55,787	-	55,787	5	55,792	20
Total	270,008	(781)	269,227	13,344	282,571	100

 

Notes:

i.    In addition to the amounts shown above, Nationwide has revocable commitments of £10,467 million (4 April 2024: £10,394 million) in respect of credit card and overdraft facilities. These commitments represent agreements to lend in the future, subject to certain considerations. Such commitments are cancellable by Nationwide, subject to notice requirements, and given their nature are not expected to be drawn down to the full level of exposure.

ii.   The fair value adjustment for portfolio hedged risk and the fair value adjustment for micro hedged risk (which relates to the commercial lending portfolio) represent hedge accounting adjustments.

iii.  FVTPL residential mortgages include equity release and shared equity loans.

 

Commitments

 

Irrevocable undrawn commitments to lend are within the scope of provision requirements. The commitments in the table above consist of overpayment reserves and separately identifiable irrevocable commitments for the pipeline of residential mortgages, personal loans, commercial loans and investment securities. These commitments are not recognised on the balance sheet; the associated provision of £0.5 million (4 April 2024: £0.3 million) is included within provisions for liabilities and charges.

 

Revocable commitments relating to overdrafts and credit cards are included in the calculation of impairment provisions, with the allowance for future drawdowns included in the estimate of the exposure at default.

 

Credit risk - Residential mortgages

 

Summary

 

Nationwide's residential mortgages comprise owner-occupied, buy to let and legacy loans. Owner-occupied residential mortgages are mainly Nationwide-branded advances made through intermediary and direct channels. Since 2008, all new buy to let mortgages have been originated under The Mortgage Works (UK) plc (TMW) brand. Legacy mortgages are smaller owner-occupied portfolios in run-off.

 

Residential mortgage arrears have remained broadly stable, with the proportion of cases more than 3 months in arrears marginally increasing to 0.42% (4 April 2024: 0.41%). This remains well below the industry average of 0.93% (UKF).

 

Mortgage lending has been strong during the period, with residential mortgage balances increasing to £210.8 billion (4 April 2024: £204.5 billion).

 

Residential mortgage gross balances
	30 September 2024		4 April 2024
	£m	%	£m	%
Owner-occupied	166,128	79	160,941	79
Buy to let and legacy:
Buy to let (note i)	43,616	21	42,321	21
Legacy (note ii)	1,060	-	1,165	-
	44,676	21	43,486	21
Amortised cost loans and advances to customers	210,804	100	204,427	100
FVTPL loans and advances to customers	38		40
Total residential mortgages	210,842		204,467

 

Notes:

i.    Buy to let mortgages include £42,941 million (4 April 2024: £41,577 million) originated under the TMW brand, with other brands now closed to new originations.

ii.   Legacy includes self-certified, near prime and sub-prime owner-occupied lending, all of which were discontinued in 2009.

 

Credit risk - Residential mortgages (continued)

 

Impairment (release)/charge and write-offs for the period
	Half year to 30 September 2024	Half year to 30 September 2023
	£m	£m
Owner-occupied	3	14
Buy to let and legacy	(7)	13
Total impairment (release)/charge	(4)	27
	%	%
Impairment charge as a % of average gross balance	-	0.01
	£m	£m
Gross write-offs	4	4

 

Balance sheet provisions have decreased to £317 million (4 April 2024: £321 million). This includes a modelled adjustment totalling £52 million (4 April 2024: £72 million) to reflect an increase to the PD to account for ongoing economic uncertainty, including the risks related to higher interest rates. Further information is included in note 8 to the condensed consolidated interim financial statements. The impairment release of £4 million (H1 2023/24: £27 million charge) is favourable to the prior year impairment charge, due to an increase in balance sheet provisions during H1 2023/24, which was driven by affordability risks recognised in relation to rising inflation and higher interest rates.

 

The following table shows residential mortgage lending balances carried at amortised cost, the stage allocation of the loans, impairment provisions and the resulting provision coverage ratios.

 

Residential mortgages staging analysis
30 September 2024	Stage 1	Stage 2 total	Stage 2 Up to date	Stage 2 1 - 30 DPD (note i)	Stage 2 >30 DPD (note i)	Stage 3	POCI (note ii)	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Gross balances
Owner-occupied	154,648	10,764	9,658	779	327	716	-	166,128
Buy to let and legacy	20,883	23,153	22,632	330	191	533	107	44,676
Total	175,531	33,917	32,290	1,109	518	1,249	107	210,804
Provisions
Owner-occupied	8	42	27	7	8	43	-	93
Buy to let and legacy	18	142	123	9	10	64	-	224
Total	26	184	150	16	18	107	-	317
Provisions as a % of total balance	%	%	%	%	%	%	%	%
Owner-occupied	0.01	0.39	0.28	0.84	2.50	5.99	-	0.06
Buy to let and legacy	0.08	0.61	0.54	2.80	5.16	12.05	-	0.50
Total	0.01	0.54	0.46	1.43	3.48	8.58	-	0.15

 

Credit risk - Residential mortgages (continued)

 

Residential mortgages staging analysis
4 April 2024	Stage 1	Stage 2 total	Stage 2 Up to date	Stage 2 1 - 30 DPD (note i)	Stage 2 >30 DPD (note i)	Stage 3	POCI (note ii)	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Gross balances
Owner-occupied	147,573	12,676	11,597	785	294	692	-	160,941
Buy to let and legacy	19,922	22,910	22,371	362	177	541	113	43,486
Total	167,495	35,586	33,968	1,147	471	1,233	113	204,427
Provisions
Owner-occupied	7	46	31	7	8	37	-	90
Buy to let and legacy	15	151	126	15	10	65	-	231
Total	22	197	157	22	18	102	-	321
Provisions as a % of total balance	%	%	%	%	%	%	%	%
Owner-occupied	0.00	0.36	0.27	0.89	2.72	5.37	-	0.06
Buy to let and legacy	0.07	0.66	0.56	4.28	5.55	12.03	-	0.53
Total	0.01	0.55	0.46	1.96	3.78	8.29	-	0.16

 

Notes:

i.    Days past due (DPD) is a measure of arrears status.

ii.   POCI loans are those which were credit impaired on purchase or acquisition. The POCI loans shown in the table above were recognised on the balance sheet when the Derbyshire Building Society was acquired in December 2008. These balances, which are mainly interest-only, were 90 days or more in arrears when they were acquired and so have been classified as credit impaired on acquisition. The gross balance for POCI is shown net of the lifetime ECL on transition to IFRS 9 of £4 million (4 April 2024: £5 million).

 

Total residential mortgage provisions have decreased to £317 million (4 April 2024: £321 million). A reduction in the adjustments held for economic uncertainty has been partially offset by the impact of a model refinement, which has increased the sensitivity of provisions to economic assumptions. 

 

Stage 2 balances have decreased to £33.9 billion (4 April 2024: £35.6 billion), which includes £9.0 billion (4 April 2024: £12.8 billion) of balances where the PD has been uplifted to recognise the increased risk of default in a period of economic uncertainty.

 

Credit performance continues to be strong. Stage 3 loans in the residential mortgage portfolio equate to 0.6% (4 April 2024: 0.6%) of the total residential mortgage exposure. Of the total £1,249 million (4 April 2024: £1,233 million) stage 3 loans, £844 million (4 April 2024: £800 million) is in respect of loans which are more than 90 days past due, with the remainder being impaired due to other indicators of unlikeliness to pay such as forbearance. For loans subject to forbearance, accounts are transferred from stage 3 to stages 1 or 2 only after being up to date and meeting contractual obligations for a period of 12 months; £146 million (4 April 2024: £164 million) of the stage 3 balances in forbearance are in this probation period.

 

 

Credit risk - Residential mortgages (continued)

 

The table below summarises the movements in, and stage allocations of, the Group's residential mortgages held at amortised cost, including the impact of ECL impairment provisions. The movements within the table compare the position at 30 September 2024 to that at the start of the reporting period.

 

Reconciliation of net movements in residential mortgage balances and impairment provisions
	Non-credit impaired				Credit impaired (note i)
	Subject to 12-month ECL		Subject to lifetime ECL		Subject to lifetime ECL		Total
	Stage 1		Stage 2		Stage 3 and POCI
	Gross balances	Provisions	Gross balances	Provisions	Gross balances	Provisions	Gross balances	Provisions
	£m	£m	£m	£m	£m	£m	£m	£m
At 5 April 2024	167,495	22	35,586	197	1,346	102	204,427	321
Stage transfers:
Transfers from stage 1 to stage 2	(9,346)	(2)	9,346	2	-	-	-	-
Transfers to stage 3	(62)	-	(297)	(9)	359	9	-	-
Transfers from stage 2 to stage 1	9,880	27	(9,880)	(27)	-	-	-	-
Transfers from stage 3	38	-	142	6	(180)	(6)	-	-
Net remeasurement of ECL arising from transfer of stage	-	(25)	-	22	-	11	-	8
Net movement arising from transfer of stage	510	-	(689)	(6)	179	14	-	8
New assets originated or purchased (note ii)	16,809	2	895	11	-	-	17,704	13
Net impact of further lending and repayments	(3,405)	-	(270)	(1)	(5)	(2)	(3,680)	(3)
Changes in risk parameters in relation to credit quality	-	3	-	(5)	-	13	-	11
Other items impacting income statement (including recoveries)	-	-	-	-	-	(4)	-	(4)
Redemptions	(5,878)	(1)	(1,605)	(12)	(143)	(16)	(7,626)	(29)
Income statement charge for the period								(4)
Decrease due to write-offs	-	-	-	-	(21)	(4)	(21)	(4)
Other provision movements	-	-	-	-	-	4	-	4
At 30 September 2024	175,531	26	33,917	184	1,356	107	210,804	317
Net carrying amount		175,505		33,733		1,249		210,487

 

Notes:

i.    Gross balances of credit impaired loans include £107 million (4 April 2024: £113 million) of POCI loans, which are presented net of lifetime ECL on transition to IFRS 9 of £4 million (4 April 2024: £5 million).

ii.   If a new asset is originated in the period, the values included are the closing gross balance and provision for the period. The stage in which the addition is shown reflects the stage of the account at the end of the period.

 

Further information on movements in total gross loans and advances to customers and impairment provisions, including the methodology applied in preparing the table, is included in note 10 to the condensed consolidated interim financial statements.

 

Credit risk - Residential mortgages (continued)

 

Reason for residential mortgages being reported in stage 2 (note i)
30 September 2024	Owner-occupied			Buy to let and legacy			Total
	Gross balances	Provisions	Provisions as a % of balance	Gross balances	Provisions	Provisions as a % of balance	Gross balances	Provisions	Provisions as a % of balance
	£m	£m	%	£m	£m	%	£m	£m	%
Quantitative criteria:
Payment status (greater than 30 DPD)	327	8	2.50	191	10	5.16	518	18	3.48
Increase in PD since origination (less than 30 DPD)	10,232	34	0.33	21,393	114	0.53	31,625	148	0.47
Qualitative criteria:
Forbearance (less than 30 DPD)	163	-	0.02	2	-	1.34	165	-	0.03
Interest only - significant risk of inability to refinance at maturity (less than 30 DPD)	-	-	-	1,562	18	1.13	1,562	18	1.13
Other qualitative criteria	42	-	0.02	5	-	0.34	47	-	0.05
Total stage 2 gross balances	10,764	42	0.39	23,153	142	0.61	33,917	184	0.54

 

Reason for residential mortgages being reported in stage 2 (note i)
4 April 2024	Owner-occupied			Buy to let and legacy			Total
	Gross balances	Provisions	Provisions as a % of balance	Gross balances	Provisions	Provisions as a % of balance	Gross balances	Provisions	Provisions as a % of balance
	£m	£m	%	£m	£m	%	£m	£m	%
Quantitative criteria:
Payment status (greater than 30 DPD)	294	8	2.72	177	10	5.55	471	18	3.78
Increase in PD since origination (less than 30 DPD)	12,192	38	0.31	21,298	124	0.58	33,490	162	0.48
Qualitative criteria:
Forbearance (less than 30 DPD)	148	-	0.01	2	-	0.45	150	-	0.02
Interest only - significant risk of inability to refinance at maturity (less than 30 DPD)	-	-	-	1,430	17	1.22	1,430	17	1.22
Other qualitative criteria	42	-	0.02	3	-	0.23	45	-	0.04
Total stage 2 gross balances	12,676	46	0.36	22,910	151	0.66	35,586	197	0.55

 

Note:

i.    Where loans satisfy more than one of the criteria for determining a significant increase in credit risk, the corresponding gross balance has been assigned in the order in which the categories are presented above.

 

Loans which are reported within stage 2 are those which have experienced a significant increase in credit risk since origination. The Annual Report and Accounts 2024 sets out the main criteria used to determine whether a significant increase in credit risk has occurred since origination. There have been no changes to the criteria during the period.

 

Credit risk - Residential mortgages (continued)

 

Credit quality

 

The residential mortgage portfolio comprises many small loans which are broadly homogenous, have low volatility of credit risk outcomes and are geographically diversified. The table below shows the loan balances and provisions for residential mortgages held at amortised cost, by PD range. The PD distributions shown are based on 12-month IFRS 9 PDs at the reporting date.

 

Loan balance and provisions by PD
30 September 2024	Gross balances (note i)				Provisions				Provision coverage
	Stage 1	Stage 2	Stage 3 and POCI	Total	Stage 1	Stage 2	Stage 3  and POCI	Total
12-month IFRS 9 PD Range	£m	£m	£m	£m	£m	£m	£m	£m	%
0.00 to < 0.15%	140,016	3,241	24	143,281	5	4	-	9	0.01
0.15 to < 0.25%	13,322	1,768	5	15,095	2	5	-	7	0.05
0.25 to < 0.50%	13,359	6,556	9	19,924	9	15	-	24	0.12
0.50 to < 0.75%	4,194	3,401	8	7,603	2	9	-	11	0.15
0.75 to < 2.50%	4,262	10,586	42	14,890	4	42	-	46	0.31
2.50 to < 10.00%	328	5,436	54	5,818	3	45	1	49	0.83
10.00 to < 100%	50	2,929	188	3,167	1	64	8	73	2.31
100% (default)	-	-	1,026	1,026	-	-	98	98	9.51
Total	175,531	33,917	1,356	210,804	26	184	107	317	0.15

 

Loan balance and provisions by PD
4 April 2024	Gross balances (note i)				Provisions				Provision coverage
	Stage 1	Stage 2	Stage 3  and POCI	Total	Stage 1	Stage 2	Stage 3  and POCI	Total
12-month IFRS 9 PD Range	£m	£m	£m	£m	£m	£m	£m	£m	%
0.00 to < 0.15%	128,032	3,099	32	131,163	4	3	-	7	0.01
0.15 to < 0.25%	14,654	1,888	7	16,549	2	4	-	6	0.04
0.25 to < 0.50%	13,712	5,865	10	19,587	6	11	-	17	0.08
0.50 to < 0.75%	5,148	3,779	8	8,935	2	9	-	11	0.12
0.75 to < 2.50%	5,525	10,733	41	16,299	4	38	-	42	0.26
2.50 to < 10.00%	389	6,491	53	6,933	3	49	-	52	0.75
10.00 to < 100%	35	3,731	191	3,957	1	83	10	94	2.37
100% (default)	-	-	1,004	1,004	-	-	92	92	9.15
Total	167,495	35,586	1,346	204,427	22	197	102	321	0.16

 

Note:

i.    Includes POCI loans of £107 million (4 April 2024: £113 million).

 

At 30 September 2024, 95% (4 April 2024: 94%) of the portfolio had a 12-month IFRS 9 PD of less than 2.5%, reflecting the high quality of the residential mortgage portfolio.

 

Credit risk - Residential mortgages (continued)

 

Distribution of new business by borrower type (by value)

 

Distribution of new business by borrower type (by value) (note i)
	Half year to 30 September 2024	Half year to 30 September 2023
	%	%
Owner-occupied:
First time buyers	40	32
Home movers	29	29
Remortgages	15	25
Other	-	1
Total owner-occupied	84	87
Buy to let:
Buy to let new purchases	5	5
Buy to let remortgages	11	8
Total buy to let	16	13
Total new business	100	100

 

Note:

i.    All new business measures exclude further advances and product switches.

 

Gross lending increased during the period, primarily driven by the growth in lending to first time buyers, which represented 40% (H1 2023/24: 32%) of the total.

 

 

Credit risk - Residential mortgages (continued)

 

LTV and credit risk concentration

 

Loan to value (LTV) is calculated by weighting the borrower level LTV by the individual loan balance to arrive at an average LTV. This approach is considered to reflect most appropriately the exposure at risk.