NatWest says it retreated from race towards cheaper mortgage deals last year

NatWest has revealed its mortgage lending nearly halved at the start of the year as it retreated from parts of the market when competition among lenders stepped up.

The banking group said new mortgage lending totalled £5.2 billion in the first three months of the year, down from £9.9 billion the previous year.

Paul Thwaite, NatWest’s chief executive, said demand for mortgages reduced throughout 2023 and there were fewer deals on offer.

He added: “Because the market was relatively thin, price competition was very high and we took a conscious decision at that point to not compete across all segments during the latter part of the third and fourth quarter.

“We wanted to ensure we could get the right returns from the capital we were deploying.”

He said that explains the year-on-year decline in lending, but added that mortgage applications had since increased by about 25% and the lender has grown its share of the market to more than 12%.

The group, which also includes Royal Bank of Scotland and Coutts, reported an operating pre-tax profit of £1.3 billion for the first quarter, down 27% from £1.8 billion the previous year.

It is ahead of the £1.2 billion profit analysts were pencilling in for the quarter.

Total income for the bank fell by a 10th as more customers moved money from current accounts and into savings accounts with higher returns.

But NatWest revealed that customer deposits increased by £2 billion in the first quarter, reflecting growth in savings and current account balances since the end of 2023.

It also assured that the level of borrowers defaulting on loans remained low, despite the cost-of-living squeeze.

Mr Thwaite said there are signs that customer sentiment is improving since households were squeezed by cost-of-living pressures in recent years.

NatWest chief executive Paul Thwaite (NatWest/PA)

“We think that the pressure is easing for retail consumers. There is evidence they’re starting to feel a bit more confident, albeit they’re continuing to take control of their budgets.

“That’s primarily driven by expectations of reducing inflation and also a likely reduction in Bank of England base rates.

“But it is important to be balanced – there still are some challenges. The cost of living continues to impact household budgets for those customers who are rolling off mortgages, likely on to higher payments.”

Such customers are seeing average monthly repayments go up by around £250, he said.

Mr Thwaite said NatWest was taking the “necessary steps” in preparation for the Government to launch a sale of its remaining shares in the bank to retail investors, after bailing it out during the 2008 financial crisis.

He said decisions around the timing and structure of the sale were a matter for the Treasury, which previously said it could come as early as the summer.

The Government has said it hopes to fully offload its stake by 2025 to 2026.

Shares in NatWest were up more than 4% on Friday morning.