House prices move ‘would destabilise recovery’

Nationwide chief executive Graham Beale says he would allow the housing market to go through its cycle

Nationwide chief executive Graham Beale said: “Whatever happens in London, we could get unintended consequences by starting to destabilise the rise in the housing market. It’s an important aspect in the growth of the rest of the UK.

“I would allow the housing market to go through its cycle. We have had a lot of things going on and I think it’s important to allow that to consolidate and then take decisions as necessary.”

His remarks came as the lender reported a doubling in profits as mortgage lending rose by almost a third in the last financial year. There is widespread speculation that the Bank of England’s financial policy committee (FPC) will next month take action to cool the market, after deputy governor Sir Jon Cunliffe warned it was the brightest of “blinking warning lights” of risk.

The Bank has said lenders could be asked to restrict borrowing terms or forced to hold more cash on their balance sheets if it feels action is necessary.

But Beale said “frenetic” housing market activity in London was starting to ease off while elsewhere in the country prices remained 2 per cent below 2007 levels – the equivalent of 21 per cent lower when adjusted for inflation.

Figures published earlier this week show mortgage approvals falling and he suggested waiting until October for a “more considered view” of how the market had developed. He added: “I am a great believer in natural corrections. If house prices come up and up and up, there will come a point when people won’t pay or they can’t pay.”

Nationwide, which rescued the Dunfermline Building Society in 2009, reported record underlying pre-tax annual profits which more than doubled to £924 million as gross mortgage lending rose 31 per cent to £28.1bn in the year to April. It helped 58,100 first-time buyers, a 37 per cent increase, and claimed it now had more than one fifth of the first-time buyer market.

The Nationwide was also a beneficiary of new rules designed to encourage people to shop around for the best current account deal. It added more than 430,000 current accounts, a rise of  18 per cent on the year before. Deposit balances grew by £4.9bn.

Beale said the record profits haul was not a one-off and the business was “firing on all cylinders”.

He added: “Our business performance is strong, and we believe it  will improve further over the coming year, with a further increase in margins and a continued growth in our banking products.” He added that there were no plans to follow rival lender Lloyds in introducing a loan-to-income cap on those looking to borrow more than £500,000.

“We have no plans to do it, although if there is a direction from the FPC, we will of course comply,” he added.

Policymakers have already withdrawn the Funding for Lending scheme – designed to boost flagging borrowing – from the housing market.

Meanwhile, new mortgage rules  introduced last month mean buyers  are probed in more detail about affordability.