Nationwide has warned that mortgage arrears are rising as the building society reported increased profits on the back of higher interest rates. Higher borrowing costs after the Bank of England raised interest rates 14 times since the end of 2021 have caused financial pain for some mortgage holders while benefiting savers. Nationwide said its residential mortgage arrears had increased from historically low levels but were below the industry average. The lender added: “Further increases in arrears from current levels are expected, due to both inflation and higher interest rates negatively impacting household finances.” The Bank of England has raised rates to 5.25%, the highest since the 2008 financial crisis, but kept borrowing costs unchanged at the last two meetings as it warned the economy would be on the brink of recession. It signalled, however, that interest rates would stay high for a while to tame stubbornly high inflation. Markets are pricing in a rate cut as early as spring next year. Nationwide flagged higher interest rates, continued inflationary pressures and the uncertain economic outlook as key risks. It has boosted its mortgage impairment provisions to £305m from £280m in April. More customers are taking up measures offered under the mortgage charter introduced by the government to help those struggling with higher mortgage costs, although only 5,000 customers were on interest-only payments at the end of September. Like other lenders, Nationwide has benefited from higher interest rates, which have its income. Underlying profit before tax rose to £1.3bn in the half-year to 30 September from £980m a year earlier. Statutory profit rose to £989m from £969m after the first “fairer share” payment to the building society’s members, which totalled £344m. The one-off payments of £100 were made to 3.4 million members over the summer but some labelled the scheme “unfair”, with some longstanding customers and people holding multiple Nationwide products angry at being excluded. Debbie Crosbie, the chief executive, said: “Encouragingly, economic activity, while still weak by historical standards, has held up better than expected, and there are signs that cost of living pressures are starting to ease. However, conditions for households are likely to remain challenging in the near term, as the effect of previous interest rate increases feeds through and labour market conditions soften.” She said rates were at or close to their peak, and expected activity in the housing market to remain subdued in the coming months, although income growth and lower fixed-rate mortgage rates should help to improve housing affordability over time. A week ago, Nationwide launched a two-year fixed-rate mortgage priced at below 5% in what mortgage brokers called a watershed moment. Nationwide reported that household deposit growth had slowed, mirroring a decline in mortgage lending. Total gross mortgage lending fell to £12.1bn from £19.7bn, while commercial lending remained stable at £5.5bn. To take advantage of higher interest rates, customers have been transferring money from current accounts and instant access savings into fixed-rate savings. The mutual has extended its branch promise, to not leave any town or city in which it is based, until at least 2026, and says it has the largest single-brand branch network in the UK.