Core arm back in black at Skipton

The customer-owned lender said its core mortgages and savings arm returned to the black with pre-tax profits of £3.9m for the first six months of 2011, versus £8.1m losses a year earlier.

The mutual sector is gathering momentum as the UK’s banks are tarnished by scandals ranging from mis-selling to Libor interest rate-fixing. Figures from the Building Societies Association show gross mortgage lending by building societies and other mutuals was up 38 per cent year-on-year to £14.1bn in the first half.

Skipton, the UK’s fourth-biggest building society, said there has “never been a better opportunity to capitalise on the mistrust of banks”.

Strong trading at Skipton’s Connells estate agency arm and a recovery in its mortgage servicing business Homeloan Management Ltd contributed to the group’s half-year profits of £22.3m. They were up from £6.3m in the same period a year ago and exceeded profits of £22.2m for the whole of 2011. Chief executive David Cutter said: “I don’t anticipate an (immediate) wave of converters back to the mutual sector, but although I do anticipate that will happen over time as building societies continue to build on the trust and high levels of service that they undoubtedly enjoy.

“We are confident we can continue to show modest growth in our lending as well as being a safe home for savings. Whilst the economic headwinds are very evident, we are pleased that the decent performance during the first half can stand us in good stead.”

Skipton’s net interest margin – the difference between interest paid on deposits and interest earned on loans – increased to 0.63 per cent from 0.5 per cent a year earlier.

“Our margin is relatively low compared with our peers,” said Mr Cutter. “We try to strike the right balance between what we offer savers and what we charge our borrowers.

“We’re on a trend of gradually increasing the margin. That’s mainly come about by the decent margins we’ve been able to make on new mortgage business over the last six months. There’s been a noticeable lack of supply from the major lenders and we’ve taken advantage of that in terms of growing lending.”

Skipton’s gross lending of £663.4m during the first half was down 7.5 per cent on the £717m extended during the first six months of 2011 – when Skipton increased its new lending five-fold. But after redemptions, Skipton’s net lending was £140.4m. “Our underlying mortgage book is growing,” said Mr Cutter.

The mutual has been busy in buy-to-let lending – offering loans of up to 90 per cent loan to value. “Our evidence indicates it’s a very robust sector,” said Mr Cutter.

Key to the turnaround in its core division were impairment charges or bad debt writedowns falling to £7.7m from £17.2m a year earlier. “The low interest rate environment is certainly helping,” said Mr Cutter. “Flexibility in workforces means that unemployment has not been as high as forecast. Clearly, some people have struggled during austere times, but most have learnt to adjust.”

Two closed mortgage books, Amber Homeloans and North Yorkshire Mortgages, contributed to the bulk of its impairments. The “non-prime” books comprise about £1.8bn of loans, about 18 per cent of its mortgages.

Connells opened 40 more branches – specifically focused on lettings – during the six months and now has about 500 branches. The business saw pre-tax profits rise £4m to £18.9m. Its home sales increased 4.4 per cent, despite the stagnant housing market.

Homeloan Management Ltd reported profits of £0.1m versus £3.2m losses a year earlier.