Skipton’s head sees big rise in mortgage lending

David Cutter, chief executive of the UK’s fourth-biggest building society, said the lender is resuming “modest growth” after focusing on building capital last year.

However, he revealed the group’s profits in the first half of the year are likely to be down on year ago, and its annual result will be “back end loaded”.

Skipton’s core mortgage and lending business returned to profit towards end of 2010 after more than two years of pain.

That was not enough to prevent the division reporting a £16.2m operating loss during 2010. However, that was a substantial improvement on the division’s £44m loss in 2009.

“From our own experience we’re now committing significantly more volumes than last year,” said Mr Cutter. “Probably four to five times more in terms of residential mortgages compared to last year.

“That’s on the back of being confident we can start to grow the business but in very modest form, probably in line with inflation.

“(That is) partly a reflection that we deliberately did not lend much last year, and partly our confidence that now is the time to return to modest growth.”

Earlier this year Skipton started growing its lending in the buy-to-let mortgage market, which is booming as householders opt to rent instead of buy.

The mutual extended £481m in new mortgage lending in 2010, but its total loans and advances fell by 9.57 per cent to £9.7bn.

The building society also made the controversial decision to increase its standard variable rate (SVR) from 3.5 per cent to 4.95 per cent. This helped Skipton bolster its core tier one ratio – a key measure of its financial strength – to 11.06 per cent in 2010.

“We deliberately strung the balance sheet by 10 per cent last year,” said Mr Cutter. “That had the benefit of improving capital. We also increased our SVR.

“We are still operating off the low margin. We have got to get the right balance between providing a great deal to our members but operating on a high enough margin that ensures that we have got more sustainable long-term confidence provided to other investors.”

Mr Cutter said while the lender is through the worst, group profits in the first six months of the year are likely to be down on a year ago, as its Connells estate agency subsidiary trades against tough comparative results a year ago.

Connells has nearly 500 branches nationwide and returned a £48m profit in 2010.

“We do expect a reduction in group profits,” he said. “Connells had another fantastic year in 2010. Their profits will be down this year but we’re pleased they are trading slightly above expectations.

“Our performance will be very much back end loaded.

“We see continuing gradual improving performance in the society itself as it continues to wind its margin slightly.”

He added the group is not expecting much respite from the economic downturn. Bank of England Governor Sir Mervyn King recently said the economy is in the midst of “seven lean years” as global finances rebalance.

“We’ve got uncertainty with Europe and the Euro; we’ve got uncertainty with the austerity package, we’ve got some complex issues in trying to restructure the banking sector,” said Mr Cutter. “It could be seven years, quite easily. It’s a long, slow road to recovery.”

He added Skipton, which has 779,000 members, £13.7bn of assets and more than 100 branches, is resigned to the record low interest rate continuing for at least this year.

Recent minutes of the Bank of England’s Monetary Policy Committee showed members voted seven to two to keep rates on hold at 0.5 per cent at the bank’s June policy meeting.

“We would welcome an increase (in the base rate) because of our members,” said Mr Cutter. “Particularly when inflation is creeping up, they are suffering.

“(But) there’s no way they will increase them this year.”

The mutual sector has been consolidating in recent years, with Skipton merging with Scarborough and Chesham building societies during the past three years.

Rivals Yorkshire and Coventry building societies have both expressed interest in taking over state-owned Northern Rock. However, Mr Cutter added he cannot see the bank being remutualised.

“The challenge for mutuals is where can you get the capital from to purchase it,” he said.

[email protected]