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Yorkshire Building Society has reported a decline in pre-tax profits as competitive pressures in the mortgage market and stagnant interest rates compress margins.
In the first half of the year, the building society’s pre-tax profits fell to £158.1 million from £180.6 million in the same period last year. This decline was primarily attributed to a reduction in net interest income, which dropped to £340.8 million from £417.2 million. Net interest income represents the revenue a bank generates from its loans minus the interest it pays out on deposits.
Yorkshire Building Society explained that the main factor driving this reduction was the repricing of its mortgage and savings books, particularly those mortgages written in 2021. The company stated, “Prevailing new business margins are narrower in comparison.”
Susan Allen, the society’s CEO, highlighted the industry’s ongoing challenges, saying, “Net interest margin remains under pressure across the industry, and the prospect of a reducing interest rate environment adds to this dynamic.”
In addition to tighter margins, the lender faced rising operational costs due to higher pay awards, an increase in headcount, and inflationary pressures on IT and utility expenses.
Despite these challenges, Yorkshire Building Society managed to increase its gross mortgage lending, reaching £5.2 billion, up from £4.2 billion last year.
Like many financial institutions, Yorkshire Building Society has benefited from higher interest rates. However, with the Bank of England expected to start lowering rates soon, the outlook is becoming less certain.
The building society acknowledged that the anticipated interest rate cuts by the Bank of England will present both “challenges and opportunities.” On one hand, a lower Bank Rate could make mortgages more affordable, potentially boosting the housing market. On the other hand, it could also reduce returns for savers. “A changing preference between fixed and variable rate products could emerge,” the company noted.
Broadly speaking, the Yorkshire Building Society warned that a declining Bank Rate environment puts pressure on earnings and that intensifying competition could amplify these challenges.
