Yorkshire Building Society sees profit fall as rate tailwind eases

Profit fell at Yorkshire Building Society as margins in the mortgage market were compressed by the plateau in interest rates.

In the first six months of the year, the building society’s pretax profit fell to £158.1m from £180.6m in the same period last year.

The fall in profit was largely due to lower net interest income, which fell to £340.8m from £417.2m. Net interest income is the revenue a bank makes on its loans minus the interest it pays out on deposits.

Yorkshire Building Society said that a “primary driver” of the reduction was the repricing of its mortgage and savings books, particularly mortgages written in 2021. “Prevailing new business margins are narrower in comparison,” the firm said.

Boss Susan Allen said that “net interest margin remains under pressure across the industry, and the prospect of a reducing interest rate environment adds to this dynamic”.

The lender also faced rising costs due to higher pay awards for colleagues, an increase in headcount and inflationary pressures on things like IT and utilities.

Despite this, the building society still managed to increase its gross mortgage lending, hitting £5.2bn, up from £4.2bn last year.

Like many banks, Yorkshire Building Society has benefited from higher interest rates. With the Bank of England likely to start reducing rates soon, the future is less clear.

Lenders will face both “challenges and opportunities” when the Bank of England starts cutting interest rates, the firm said.

The building society noted that lower Bank Rate would help make mortgages more affordable, potentially giving a boost to the market, but would also lower the rates of return for savers. “A changing preference between fixed and variable rate products could emerge,” it said.

Looking at the industry more broadly, it cautioned that “a declining Bank Rate environment has the effect of pressurising earnings. Intensifying competition could exacerbate this pressure and amplify the challenges”.