Santander predicts fall in interest rates to ease cost of living pinch

SANTANDER today warned of a “modest” increase in defaults on loans from UK customers, though it recorded record profits overall.

UK chief executive Mike Regnier said the bank’s focus was on “supporting our customers through the higher cost of living and increased interest rates. We have proactively contacted 2.5 million customers to offer help and also supported homeowners through the Government's Mortgage Charter.”

Santander is predicting that interest rates will fall from 5.25% to 4.5% by the end of the year, which should ease pressures on borrowers. Lower rates should lead to lower profits at banks, however.

The Bank of England makes its latest rate call tomorrow and is widely expected to hold them at 5.25%.

The global group, headquartered in Spain, saw profit rise 28% to e2.9 billion for the year.

Only the US car loan business seemed to struggle, with profit down 77% to e677 million.

In the UK, profits rose 13% to £2.15 billion. The net interest margin – the gap between what it pays savers and charges borrowers – rose from 2.06% to 2.2%.

Regnier added: “"s we look ahead to 2024, we expect interest rates and inflation to fall. We will continue to execute on strategic initiatives focused on building customer loyalty, creating value and simplifying our business.”

Its mortgage book suffered amid a slowing housing market over the year, with an £11.9 billion drop in mortgage lending in 2023.

But the group has upgraded its economic forecast for the UK and is pencilling in growth of 0.4%, rising to 1.3% next year, with a rosier picture for the housing market.

JP Morgan said in a note that the results "were broadly in line with expectations, although the guidance is better".