Lenders confirm mortgage struggle

Nationwide: lending on new mortgages down, but profits up

The competitiveness of the UK mortgage market has been confirmed in figures from two lenders, with the world's biggest building society reporting a 16% drop in new trade.

The mortgage and savings markets are two of the most competitive areas in the financial services marketplace

Ian Kennedy, Bristol & West

The Nationwide saw new lending fall £1.1bn to £6bn between May and October, figures from the mutually-owned mortgage giant showed on Wednesday.

And mid-ranking lender Bristol & West, which demutualised in 1997, announced it is to look increasingly to the financial advice and specialist mortgages markets for profitability.

The announcements follow the release of figures showing a slowdown in the growth of mortgage lending over the summer.

Lower margins

"Bristol & West will substantially reduce its reliance on the standard mortgage and savings markets, the sectors that are most at risk from margin deterioration," the company said on Wednesday in its half-year results statement.

Bristol & West will substantially reduce its reliance on the standard mortgage and savings markets

Company statement

But the lender, owned by Bank of Ireland, has made "significant progress" in targeting the advice sector "which is judged to have significant potential to drive future growth", the statement said.

"GDP is growing, so in general people are getting wealthier," Ian Kennedy, Bristol & West's deputy chief executive, told BBC News Online.

"Meanwhile, the government is drawing back from providing for people, in things like pensions. So people are going to have to provide for themselves.

"The factors together should provide big market growth," he said.

Bristol & West last week unveiled the £26m purchase of MoneyeXtra, the pioneering financial advice website.

Earlier this year, the bank bought the independent financial advice chain Chase de Vere for £110m.

'Competitive market'

Nationwide said that, despite a decreasing market share, "residential mortgage lending has been robust... in what has been a competitive market".

And the Nationwide's savings accounts operations hugely outperformed targets to help pre-tax profits rise 15% to £253.8m between April and October.

The firm's online banking services, launched in 1997, have attracted 450,000 customers.

While rival e-bank Egg, launched in 1998, claims 1.2 million clients, the Nationwide has built its online operations without having to rely on "gimmicky names" or swallowing huge launch costs, spokesman Alan Oliver said.

Mutuality boost

Nationwide's performance was bolstered by its mutual status, which allows it to "act in the benefits of members, who are customers, rather than shareholders", Mr Oliver told BBC News Online.

MoneyeXtra: bought for £26m

Avoiding the need to pay shareholders' dividends has helped the building society return £190m to customers through lower mortgage rates and larger interest payments to savers, he said.

But Bristol & West's Ian Kennedy warned that the Nationwide's future growth may be hindered by its mutual status.

"The mortgage and savings markets are two of the most competitive areas in the financial services marketplace," he told BBC News Online. "In the long run there are going to be pressures on [the Nationwide] to diversity."

Rules limiting the sums mutual institutions can borrow will "make it hard for them".

"It is arguable whether we would have been able to buy MoneyeXtra and Chase de Vere if we were still a mutual," he said.