Skipton raises mortgage lending but impairment charges bite

Skipton Building Society increased mortgage lending threefold to £1.7bn last year, but saw pre-tax profits fall by more than a third to £22.2m as the mutual doubled the amount of money set aside for potential losses and paid out nearly £6m to the “unjust” Financial Services Compensation Scheme.
By The Newsroom
Published 29th Feb 2012, 06:00 BST

Annual accounts show that Britain’s fourth biggest building society took a £30m hit in impairment loss charges in 2011, up from £14.8m the previous year.

Arrears rose slightly during the year, with a real increase of 28 cases, but started showing a reduction from September.

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The group’s core mortgage and savings business made a loss of around £13m, the same as 2010, although chief executive David Cutter said the division’s underlying profitability is now positive. The group’s evergreen estate agency division, Connells, achieved a pre-tax profit of £35.8m, a fall of 25 per cent on last year blamed on “difficult market conditions”.

But Mr Cutter said Connells has “got off to the best start in five years”, with a 17 per cent increase in like-for-like business.

“We are encouraged by the trends in the market at the beginning of the year,” he said, adding that consumer confidence and mortgage availability would determine whether this continues.

He said Skipton’s mortgage lending during 2012 “could well be flat”.

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He added: “In terms of house prices I would not be surprised if they remain flat.”

Skipton’s financial advice division performed well, with profits shooting up to £2.9m from £1m the previous year and the business is said to be in good shape ahead of market reforms.

HML, the mortgage services division, made a pre-tax loss of £3.1m, resulting from restructuring costs.

HML was the subject of market speculation about a possible sale last summer. “It’s a key part of the group and has our full support,” said Mr Cutter.

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Skipton had to hand over £5.9m to the Financial Services Compensation Scheme, up from £900,000 in 2010, as part of the continuing cost of bailing out UK savers at Bradford & Bingley and Icelandic banks.

Mr Cutter said: “Our sense of injustice in terms of its unfairness very much remains.”

Building societies complain that they have to shoulder a disproportionate burden of the costs for the scheme to pay for banking failures.

Mr Cutter also warned that the “huge regulatory change agenda” facing banks and building societies “could be fraught with unintended consequences” and might affect market pricing and capacity.

Group accounts show a 1.2 per cent rise in total assets to £13.9bn.

Skipton said its core tier one ratio – a measure of strength – fell to 10.5 per cent last year from 11.1 per cent in 2010.

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