Skipton half-year profits show near 50pc rise

Continued losses in the core mortgage and savings business were offset by stellar performance by the mutual's estate agency and financial advice divisions.

In the six months to June 30, the group reported a pre-tax profit of 21.7m, up from 14.7m during the same period last year. The group also reported an increase in measures of its financial strength.

David Cutter, chief executive, told the Yorkshire Post: "There is no denying it is still a challenging market but we are pleased with our performance."

The half-year results show narrowing losses in the mortgage and savings division of 5.7m, down from 9.1m.

The division was helped by an increase in the net interest margin – the difference between interest income and interest paid out – in the second half of 2009 and a 12 per cent reduction in arrears.

The mutual wrote off 3.2m on bad mortgages in the period, a dramatic fall from 22.1m in the first six months of 2009.

Mr Cutter said he was confident the mortg age and savings division would continue to improve throughout the rest of this year and into next, but would not reveal internal forecasts for when the division might return to profit. It has not turned a profit since 2007.

The estate agency division, Connells, saw profits shoot up in the first half to 31.7m, up from 20.8m. The performance was driven by a 23 per cent increase in new instructions and a 13 per cent increase in house exchanges.

The division remains "robust", said Mr Cutter, but he warned that the market was moderating with an increase in the supply of new homes and fears over the Government's austerity measures.

The group's financial advice division transformed a 100,000 loss in the first half of 2009 into a profit of 1.7m in the first half of 2010.

Without these contributions, the group would have slumped to a significant loss. In response, Mr Cutter said: "It shows the benefit of our diversified model. Different parts of it perform better at different stages of the economic cycle. Some parts thrive in the downturn. Others find it challenging."

The third-party mortgage services provider, HML, made "a small loss", which included restructuring costs, but is investing in its future with new headquarters, investment in its systems and an "interesting pipeline", he added.

Mr Cutter said the overall business has "a sustainable and strong future".

On key measures of financial strength, the group's core tier one capital ratio rose by 38 per cent to 9.9 per cent and tier one capital ratio rose by 34 per cent to 11.4 per cent.

The mutual's capital position benefited from the sale of its Callcredit subsidiary to a buyout firm in December, which generated profits of around 40m, and trading profits.

It has also benefited from a 600m reduction in the mortgage book. Mr Cutter said: "Our appetite for new business has been very modest compared to historical standards. That's due to a desire to further improve our capital position and be cautious of the uncertainty which remains in the financial markets."

Skipton's merger with Chesham Building Society this year further increased the group's capital strength and boosted its member base by 21,000.

Economy expected to remain poor

Skipton Building Society is not expecting a rise in interest rates until at least May next year. The 92-branch group believes that the UK economy will grow, but this growth will be anaemic.

Uncertainty surrounds sovereign debt of some European nations and the impact of Government austerity measures, said chief executive David Cutter.

"It's going to continue to be a long, hard slog," he said. But he added: "I'm not a double dipper."

Skipton caused controversy earlier this year when it scrapped a ceiling on its mortgage standard variable rate, leading to increased monthly payments for thousands of borrowers.