Profit soars as Skipton enjoys big rise in mortgage lending

CHEAP money from Bank of England has helped Skipton Building Society to increase mortgage lending, fuelling a sharp rise in profitability.
Mike Ellis (left), chairman, and David Cutter, chief executive of Skipton Buildiing Society.Mike Ellis (left), chairman, and David Cutter, chief executive of Skipton Buildiing Society.
Mike Ellis (left), chairman, and David Cutter, chief executive of Skipton Buildiing Society.

The North Yorkshire mutual said pre-tax profits rose 59 per cent to £34.4m in the first six months of 2013, virtually eclipsing the figure for all of last year.

This was largely due to a strong improvement in the performance of the group’s core mortgages and savings business.

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The division, loss-making from 2009 through to 2011, increased net mortgage lending by £455m in the first half, up from £131m the same period last year, while benefiting from a reduction in funding costs.

It also increased the number of new members by nearly 11,000.

The Funding for Lending scheme, supported by the Government, allows financial institutions to borrow from the Bank at cheaper than market rates to stimulate new lending. In turn, the scheme has driven down rates for savers’ deposits.

This has helped Skipton widen the spread between how much it earns on mortgages and liquidity versus the interest it pays for retail and wholesale funding.

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Consequently, the division’s profits rose by £12.5m to £16.2m during the period.

David Cutter, chief executive, said it was difficult to forecast which way savings rates will go in the future.

“It will depend on whether the mortgage market starts to grow again,” he added. “If that happens, then banks and building societies will need to fund that and that will increase the demand for customers’ money.”

In spite of the market conditions, Skipton said it continues to endeavour to support savers. Its average rate payable to customers was 2.21 per cent, below the 2.9 per cent rate of inflation seen in June.

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The lender, chaired by Mike Ellis, has drawn £410m from the Funding for Lending scheme and has increased net lending since its launch by £656m.

Skipton’s estate agency business also had a good start to the year, underlining its ability to generate consistent profits.

Connells, which supported the member-owned society through the economic downturn, increased profits 24 per cent to £23m as house sales rose by 17 per cent. Mr Cutter credited the performance to a strong housing market in the first half. He said: “We don’t see any reason why that should not continue in the second six months.”

Skipton reported a slide in mortgage arrears, to 1.16 per cent, although it increased the amount of money set aside to cover potential losses on equity release loans by £5.3m after taking a more conservative view of long-term house prices.

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The charge for provisions was £12.2m in total, up from £7.7m the same time last year.

The mutual also revealed a £20m one-off benefit from an unusual source – an initial public offering on the New Zealand Stock Exchange.

Last decade, Skipton took a majority shareholding in its IT provider, Jade Software Corporation, as a defensive move.

The company developed a suite of innovative IT products for government, police and security agencies which needed external investment so the society took the decision to spin off the products into a company called Wynyard.

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The IPO raised $65m New Zealand dollars, with Skipton retaining a 25 per cent holding in the company.

The group will realise the £20m benefit in the second half of the year, pointing to a strong financial performance for 2013.

Skipton increased its core tier one capital ratio – a key measure of financial strength – to 11.42 per cent, up from 11.08 per cent at December 2012.

Its leverage ratio increased to 5.1 per cent, comfortably above the expected regulatory requirement when new international financial rules are introduced.

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The group continued to reduce its liquidity – cash and equivalents that it holds to lend money and pay depositors – from the levels seen during the financial crisis to balance security and cost.

It added that 84.7 per cent of total funding came from retail savings balances, compared to 83.1 per cent at the end of last year. These now stand at £9.73bn.

HML, the group’s mortgage servicing business, continued to trade profitably in a subdued mortgage outsourcing market and made a pre-tax profit of £300,000, compared to £100,000 during the same period last year.

The group’s three financial services businesses brought in a combined profit of £500,000, reversing a loss of £500,000 in the first half of 2012.

In total, Skipton Building Society employs around 8,000 people through its diverse group.