Nationwide is predicting a correction in the London housing market after the British property boom helped it post a 34% increase in first half profits.
The UK’s second largest mortgage lender said it did not expect a price shock in the capital, which has driven a surge in the wider housing market, but pointed to a likely price “moderation” in one of the world’s most expensive cities.
“I’m expecting a natural correction in prices in London,” said Graham Beale, Nationwide chief executive. Beale said house price growth in London was unsustainable because it is outstripping wages. According to Nationwide, the average London house price at the end of September was £443,399, up 10.6% on the previous year, more than three times the rate of national pay growth. For the UK as a whole, prices averaged £195,733, 3.8% up on the previous year.
“Nationally we’ve got wages going up around 3% and prices going up by around the same amount but in London the appreciation is significantly ahead of the national average. It’s in low double digits. There will be a point where people can not afford to buy at these levels. There will be a natural dampening.”
Beale said he expected prices in the rest of the country to remain stable, with demand outstripping the supply of new homes and keeping price rises at up to 4%. “Whereas last year we had the uncertainty of the vote in Scotland and the general election, this year there’s a lot more certainty.”
He said he did not expect the run-up to the referendum on Europe to affect housing sentiment. “Whether we vote in or out, I think the UK housing market is largely a domestic one.”
Nationwide’s first-half figures were helped by a £1.8bn (14%) increase in its residential mortgage lending, taking the total amount lent to customers to a record £14.9bn.
Earlier this week, Nationwide revealed that the BT Openreach chief executive, Joe Garner, would become its new chief executive next year in place of Beale, who had announced his intention to step down in May.
After what will probably be his last set of results, Beale took the opportunity to look back at the way the market has changed since the 1990s, and in particular lamented the demise of much of the mutual building society network.
“If you look at all those institutions that converted in the first half of the 1990s, such as Halifax, Abbey, Woolwich, Bradford & Bingley, not one of them has been successful as a bank. In fact there have been some spectacular failures.
“I would argue that we serve a social purpose to provide a safe home for savers and we do not engage in high risk activities.”
Given Nationwide’s status as a mutual, Beale said he was disappointed with the chancellor’s decision to include it in the introduction of the tax surcharge on banking companies announced in the budget.
“We’re continuing to make noises,” he said. “But we all know that the chancellor has limited capacity to vary the budget. But at some point in the future I do hope that he can differentiate between mutuals and non-mutuals.” Nationwide reckons the tax could cost it £300m over 5 years.
“Nationwide is not a bank and serves a social purpose of facilitating home ownership and promoting a savings culture,” says Beale. “The tax surcharge will have a disproportionate effect on building societies and we believe that it represents a missed opportunity to support diversity in UK financial services.”
Beale, who has been chief executive for nine years, says he will start to look seriously at what he does next soon. “I think I’ll be looking at non-executive positions but I need to rebalance the work and life components of my life.”
“I’ve never felt as confident or optimistic for the future of this organisation. It’s a great place to be.”