The country is sounding the alarm on bad debts

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Country sounds alarm over bad debt: Building society sets aside more than £100million as cash-strapped households fear struggling with debt

Strong performance: CEO, Debbie Crosbie

Nationwide has set aside more than £100million to cover bad debts, fearing cash-strapped households will struggle to meet their debts.

Britain’s second-largest mortgage lender, owned by its member-customers, saw profits soar to £969m in the six months to September, from £853m a year ago.

But that number has been weighed down by Nationwide’s decision to set aside £108million as it prepares for customers hit by a cost of living crisis to fall into arrears.

The building society said it did not see that happening yet, but “rising interest rates, rising inflation and an uncertain economic outlook remain the main risks”.

Chief executive Debbie Crosbie said Nationwide’s strong performance, boosted by the revenue it can generate by charging higher interest rates now that the Bank of England has raised its base rate, would allow the lender to investing in products for its members.

She said: “We have increased the incentive to switch current accounts and extended our support to members facing increases in the cost of living, including practical support provided at our branches, a dedicated telephone hotline and a online support.”

Nationwide also passed on a greater proportion of interest rate increases to its savers than the market average, he said. But Crosbie noted Nationwide was “not immune to economic challenges and maintaining financial strength is important.”

The Office for Budget Responsibility, the government’s budget watchdog, warned this week that the economy had been in recession since the third quarter. It will last a little over a year and will wipe out the economy by 2% and lower the standard of living by 7% in two years. But Robert Gardner, Nationwide’s chief economist, said he hoped low unemployment and accumulated savings during the pandemic would soften the blow.

Buy-to-let borrowing has already started to decline, Nationwide noted. Crosbie said it could present an additional challenge for tenants if landlords sell their properties and tenants have to sue an ever-shrinking number of homes.

All the other major banks in the UK are bolstering their reserves in anticipation of a collapse, although none have started to see an increase in bad loans.

Nationwide, however, had to provide £400million in loans to its pension fund, which faced a cash crunch during the chaos following the Kwasi Kwarteng mini-budget.

Muir Mathieson, the lender’s treasurer, said the program was “very solvent and very well funded”.

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