OneSavings Bank shares tumble as rising mortgage competition prompts guidance downgrade
Shares in FTSE 250 lender OneSavings Bank (OSB) dropped as much as 19 per cent on Thursday after the group lowered its forecasts for the full year on the back of rising competition in the mortgage market.
Alongside its results for the first half of 2024, the bank said it expected its net interest margin (NIM) – measuring of the gap between interest received on loans and rates paid for deposits – to be between 2.3 and 2.4 per cent for the full year.
This range is down from its previous guidance of around 2.5 per cent, with OSB flagging that “increased competition in the subdued mortgage market” would likely result in maturing fixed-term mortgages redeeming or switching onto lower rates more quickly.
UK lenders have broadly seen the tailwind from higher borrowing costs fade in recent months as the Bank of England moved closer to cutting interest rates for the first time since March 2020, ultimately doing so earlier this month.
OSB, which specialises in subsections of the mortgage market like buy-to-let, also lowered its forecast for loan book growth. It now expects an increase of around three per cent for 2024, compared to a previous estimate of around five per cent.
The bank forecast a cost-to-income ratio – a key measure of efficiency where lower is better – of roughly 36 per cent, compared to a previously-guided figure of around 33 per cent.
Thursday’s drop comes after previous blows to OSB’s share price from a profit warning last July and lower than expected margin guidance in March.
Following the results, RBC Capital Markets lowered its price target on OSB’s stock to 550p from 625p, which analyst Benjamin Toms said reflected “tougher operating trends”.
OSB reported a statutory pretax profit of £241.3m for the first half of 2024, compared to £76.7m during the same period last year. It announced a new £50m share buyback.
The sharp rise in profit was mainly driven by the fact that OSB’s bottom line was not hit an adverse effective interest rate (EIR) adjustment like it was last year – suffering a £181.6m blow after customers chose to refinance their mortgages earlier than expected.
The lack of an adverse EIR adjustment helped OSB’s net interest income jump 49 per cent to £353.5m for the six months, while its NIM rose 66 basis points to 2.37 per cent.
OSB’s loan book also grew by 1.4 per cent to £26.1bn. Its originations fell to £1.9bn from £2.3bn, which the bank said reflected “pricing discipline and a focus on returns”.
Chief executive Andy Golding, whose pay for last year was slashed by 40 per cent, commented: “We have seen an improvement in the macroeconomic outlook recently which supports our cautious re-entry into more cyclical, higher margin sub-segments, which will contribute to returns in the medium term.
“We are now past peak interest rates, which will also provide a much-needed stimulus to the mortgage market.”