The Society has also announced record profit before tax of £53.5m (2013: £28.2m), as well as helping more than 2,300 first-time buyers get onto the property ladder.
Graeme Yorston, Principality’s Group Chief Executive, said:
“Competition in the mortgage market has meant that interest rates for borrowers have been forced downwards and as a direct result of this savings rates have also been reducing. Lenders, including Principality, have had to remain competitive and ensure that their businesses remain profitable, hence the reduction in both sides of the balance sheet.
“We do recognise the plight of savers in an environment of continuing low interest rates and we have implemented a number of initiatives to help alleviate this, including holding our Promise Saver rate throughout 2014, despite a drop in rates across the market. Our savers are fundamental to Principality with 91.4 per cent of the money we lend coming from them. But we cannot operate in isolation or against market trends as we need to ensure the competitiveness of our mortgage business as well as our savings business.
“Our secured lender Nemo Personal Finance continues to perform strongly, fulfilling an important role within the Group and helping consumers manage their finances more effectively. In 2014, the secured loan market has seen increased competition putting downward pressure on pricing and it faces a changing regulatory landscape over the next 12 to 18 months. However, Nemo is well positioned to deal with these challenges and it continues to perform well, seeing healthy profits for another year, despite a decrease to £13.9m from £16.4m in 2013."
Commenting on the outlook for 2015, Graeme said:
“I expect continued growth in the UK and increased employment. Wages have started to rise more rapidly than prices and interest rates have now been at 0.5% for more than five years allowing the economy time to recover and grow.
“After a number of difficult years savers will be hoping that 2015 signals the return to better interest rates. But latest indications show that with inflation dropping it is unlikely that the governor of the Bank of England will increase rates until at least the third quarter of 2015, maybe even 2016.
“Whilst savers will think that a change in bank rates is good news and new entrants in the market should increase competition, unfortunately for savers I don’t think that savings rates will grow as fast as they might hope. The relationship between the bank base rate and savings rates is broken and the difference between the two rates needs to be managed by lenders to ensure they are also able to offer competitive mortgage rates and continue to hold enough capital to meet increased regulatory demands. The gap regrettably is not sustainable and when rates rise it is unlikely that these increases in rates will be passed on in full by financial institutions. In fact, we have seen a number of financial institutions lower their savings rates in 2014 as a result of this differential being eroded and it is something that we are also not immune to."
