Britannia profits hit by rising arrears

A sharp rise in bad debts and mortgage arrears has led to a near 40 per cent fall in profits at Britannia Building Society. The UK's second largest mutual yesterday blamed the housing crisis for a fall in its first-half profits, which came in at £31m, down from £50.5m in 2007.

The building society revealed around 1.7 per cent of its home loans were three or more months in arrears in the first six months of 2008, up from 1.25 per cent this time last year and higher than the industry average of 1.3 per cent. This was fuelled by repayment problems in specialist lending, like city-centre housing funding, and higher loan-to-value advances for first-time buyers.

The effect of a plummeting housing market and low-level consumer confidence also hit Britannia's acquired mortgage books. But Neville Richardson, Britannia Group's chief executive, argued its low average loan-to-value on mortgage lending – currently 42 per cent – would help protect the building society from significant losses from those arrears. Meanwhile, Britannia's average loan to value on new lending dropped from 61 per cent a year ago to 54 per cent today.

Total mortgage lending, at £1.9bn was down significantly from last year's £3.7bn as a result of the credit crunch and the market downturn, the mutual said, as well as the group's moves to boost liquidity and asset quality.

"We're not immune to the market downturn, and our business model anticipated losses arising from some of our lending," Mr Richardson said. "We said at the start of the year that 2008 would be a year of consolidation, rather than growth. This is a strong performance in a market that is unrecognisable from the same period in 2007."