Nationwide beats big banks with £500 million payout

Nationwide Building Society has shown a clean pair of heels to the big banks, saying it is the top choice for current accounts and handed £505 million back to members over the past year.

That sum is what Nationwide claims is the combined extra amount it pays to savers and cuts off mortgage bills thanks to not having shareholders.

Low interest rates led to a 23% fall in annual profit to £1 billion, but chief executive Joe Garner said Nationwide is uniquely able to decide to cut profits if that is in members interests. “That’s the point of us,” he said.

The society accounted for one in seven current accounts opened in the year to April — a record 795,000 which was higher than any rival.

It now has 15 million members, also a record high. It lent £33.7 billion in mortgages over the year, a rise of just 3% which suggests competition for home loans is genuinely strong.

With big banks pledging to improve service and “challenger” banks making lots of noise, some analysts assumed Nationwide would come under more pressure.

Garner said: “It is great to see competition in the market. But banks have that constant tension between what shareholders want and what customers need. We don’t.”

Nationwide is ditching car insurance. “We were never big in car insurance and really want to focus on our core purpose,” said Garner. He insists the move is not connected with rising concern about the car finance market which makes it possible for those on relatively low incomes to lease expensive vehicles.

Nationwide does expect a slowdown in the economy and a consumer squeeze this year as inflation bites. That means base rates are likely to stay on hold at record lows of 0.25%.

Garner admits that although Nationwide doesn’t always offer the best deals, over the lifetime of a mortgage or savings product it will beat rivals. “It’s not about what you get on Day One. It is about real value,” he said.

Nationwide said that even if the economy stumbles, people will keep paying rent and mortgages and cut back on leisure spending. Garner added: “In the housing market, if the economy slows, there will be a cooling effect in the form of lower sales and house price growth.”

Nationwide’s Tier 1 capital ratio — a measure of financial strength — is up to 25.4%, much higher than most banks.

There has been no serious attempt by members to convert Nationwide to a bank since 2001, a move that would supposedly trigger windfalls. The failed demutualisations of Halifax, Bradford & Bingley and others suggest there is unlikely to be pressure for a member vote on this issue for some time.

With rivals shutting branches, Nationwide said it would invest £80 million in them this year. Although the profits are down, they are still the third- highest in Nationwide’s history.