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Santander gears up for mortgage defaults

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Santander has revised its forecast for mortgage defaults, setting aside a charge of £18m.

The lender’s Q1 results revealed it had revised its ‘mortgage probability of default’ to £18m.

It stated: “We uplifted our modelled mortgage probability of default as back testing and monitoring shows a risk of model underestimation.”

During the pandemic, lenders offered six-month mortgage payment holidays for customers who were struggling to keep up with repayments.

This resulted in low default rates over the period but now that restrictions have eased, mortgage defaults are expected to return to typical pre-pandemic levels.

As part of its 2022 outlook, Santander said it expects growth in mortgage lending to be “broadly in line with the market”, despite the UK economy facing a range of challenges over the last two years.

This includes Brexit, and most significantly the Covid-19 crisis. But attention has now been switched to the high rates of inflation seen globally, which has been exacerbated by the conflict in Ukraine that has triggered a sharp increase in commodity prices.

As such, the outlook remains “increasingly uncertain” as inflation hits record levels and real disposable income is set to drop 2% this year.

Further, the next large increase in the energy price cap in October could lead to a further spike in inflation in late 2022, “creating further cost of living challenges for households and businesses well into 2023”.

The banking giant said it has dedicated sections on its website to help customers manage their energy bills, plan budgets and stay on top of spending.

Mike Regnier, CEO, said: “As households face rapidly increasing costs of living, we stand ready to support our customers and provide them with practical advice and tools.

“We have a dedicated team of financial care specialists, reaching out to people who may be experiencing difficulties and have increased online customer support capability. We will explore all options for customers who are facing difficulties with their loan, credit card, overdraft or mortgage.”

Santander has 1.2 million mortgage customers. It reported pre-tax profit of £495m for the three months ending 31 March 2022, up from £175m a year earlier.

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