Nationwide’s net lending drop from £7.1bn to £3.3bn for the year ended 4 April 2023 reflects an overall decline in confidence in the housing market, according to financial experts.

Graham Cox, founder of Self Employed Mortgage Hub, said Nationwide’s net lending decrease illustrates how much demand has slowed as interest rates have risen. 

”Nationwide’s preliminary results highlight how fundamentally the mortgage market has changed in the last year. Net lending is less than half what it was in the previous year,” he said.

Samuel Mather-Holgate, managing director of Mather & Murray Financial, said the decline in confidence in the housing market was unlikely to return until interest rates start getting slashed, which he predicted could be later this year, after the Bank of England increased the bank rate to 4.5% last week.

Nationwide’s annual financial report also showed that total gross mortgage lending reduced by £2.9bn to £33.6bn, while its credit impairment charge grew to £126m from £27m in the year prior.

The bank said it expects future increases in arrears due to affordability pressures.

A spokesperson for Nationwide said: “The credit quality of our lending portfolio remains very strong with low levels of arrears. The credit impairment charge of £126m for the year reflects a deterioration in the economic outlook during the year, with expected future increases in arrears due to affordability pressures.”

Riz Malik, director of R3 Mortgages, suggested the impairment charge increase “is a cause for concern”.

“Indeed, there’s an economic storm on the horizon. As the rise in interest rates eventually affects a larger segment of the population, particularly when more individuals need to refinance their mortgages, financial stress could become more widespread,” he said. ”Nationwide, like its counterparts, seems to be preparing for these challenges ahead.”

However, Mather-Holgate pointed out Nationwide’s customer base put it in a good position going forward.

“Nationwide have always been a vanilla lender, looking for customers with whiter than white credit history,” he said. ”It’s no surprise that their credit impairment charges are low, but even Nationwide say they expect this to increase this year. Overall, these results seem very positive for a lender that will be thankful of their policy to exclude those most vulnerable to economic shocks.”

Elsewhere in the financial results, Nationwide noted that the economic outlook remains highly uncertain, with continued increases in the cost of living and higher interest rates for borrowers putting further pressure on household finances and restraining consumer confidence.

This has led to reduced mortgage market activity and lower house prices which are expected to remain subdued in the second half of 2023, according to Halifax’s chief executive Debbie Crosbie.

However, Cox said: “Whether that means they think [house] prices will continue falling or flatline isn’t clear. Personally, I think it’s highly likely they’ll fall due to high mortgage rates and the cost of living crisis.”