Home Estate Planning Santander UK rides out interest rate peak but expects further mortgage weakness

Santander UK rides out interest rate peak but expects further mortgage weakness

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High street lender Santander UK has reported an uptick in profits during the final quarter of 2023 as it rode out the end of an interest rate spike, while weakness continued in the mortgage market.

The UK arm of Spain’s largest bank saw pretax profits of £343m in the fourth quarter, up £23m year-on-year. However, the figure was down from £503m in the previous quarter.

Total income came in at £1.1bn in the fourth quarter, down £0.1bn year-on-year, which the firm said was “due to growth in savings deposits offering top of the market rates”.

Attributable profit – which is owed to shareholders and either awarded in dividends or kept as reserves – jumped 13 per cent for the full year to £1.3bn.

UK banks reaped the benefits of the Bank of England’s 14 straight interest rate hikes until last September but, as customers have adapted to the higher rate environment, are under pressure to offer better deals.

Santander UK’s pretax profit was £1.8bn in 2023, up 13 per cent from the previous year.

Its net interest income (NII) – reflecting the difference between what the firm pays out and receives in interest – fell £56m year-on-year to £1.1bn in the fourth quarter amid an increase in the cost of funding and a likely peak in the base rate.

The firm’s loans to consumers slipped to £184m in the quarter from £196m the previous year, driven by a £12m reduction in mortgage lending. Total deposits remained steady at £195m.

It forecasted that mortgage activity would “remain subdued” and “weak in the near term” as high interest rates squeeze customers’ finances.

Santander UK expected corporate borrowing growth to stay negative, marking “weak investment intentions and higher financing costs”.

The wider group reported a 28 per cent rise in net profit to €2.9bn in the fourth quarter, beating analysts’ estimates by around €200m. The strong performance was driven by NII in the UK, Spain and Portugal.

Santander’s US arm saw net profit tumble 77 per cent to €67m as it boosted loan loss provisions.

Analysts expect the UK’s biggest banks to see their NII shrink markedly in 2024 when the central bank starts lowering interest rates.

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