Rebuilding confidence in the lending market: The role of Rebuilding confidence in the lending market: The role of

UK Building Societies and mutualsUK Building Societies and mutuals

Presentation to Working Party on Land Administration

United Nations Economic Commission for Europe

11 October 2012

Paul Broadhead

Head of Mortgage Policy

The Building Societies Association

• What are Building Societies?

• Perception of financial services and the deficit

of trust

• Housing market

• Horizon Scan

• Falling home ownership

• The future of land registration?

Agenda

Overview of Building Societies (plus the Co-operative Bank)

Approx Data 2011

• 47 building societies – very large to very small• 50,000 staff (full and part-time)• Just under 2,000 branches• 2,500 ATMs• 20 million investing members• 2.6 million borrowers• £375 billion assets• 75% retail funded• 87% residential mortgage lending• £442 million post-tax profit 2011• 20% of outstanding mortgages & 22% deposit savings

Opportunities

• Mutuals are long-term institutions, well able to withstand short-term Mutuals are long-term institutions, well able to withstand short-term

variations in activityvariations in activity

• Current distrust of banks – mutuality, and “localness”, the obvious Current distrust of banks – mutuality, and “localness”, the obvious

alternativealternative

• Demutualisation failedDemutualisation failed

• High customer service levels – including trustHigh customer service levels – including trust

• Even if markets are quiet for now still a huge housing needEven if markets are quiet for now still a huge housing need

• Many housing initiatives – self-build, shared ownership/equity, local Many housing initiatives – self-build, shared ownership/equity, local

market knowledge, Housing Hub market knowledge, Housing Hub

• On many savings initiatives – ISAs, CTF, JISAs – ahead of the On many savings initiatives – ISAs, CTF, JISAs – ahead of the

marketmarket

• Innovative capital instrumentsInnovative capital instruments

Mutuals: Better customer service

An independent survey published in July 2012 An independent survey published in July 2012

showed that Mutuals outscore plc banks on these showed that Mutuals outscore plc banks on these

measures: measures:

• Looks after the communities it operates in Looks after the communities it operates in

• Offers reasonable value for moneyOffers reasonable value for money

• Customers trust them to act in their best interestsCustomers trust them to act in their best interests

• Values the customerValues the customer

• Deals with complaints quickly and effectivelyDeals with complaints quickly and effectively

The Economy andMarkets

• GDP growth around 1% pa• Unemployment rising, inflation falling (except

last set of statistics)• House prices stable – but regional variations• Owner-occupation falling sharply – down

0.5% a year from 2003-10. Down 1.4% in 2011.

• Private rented sector up from 10% in 2000 to 16.5% in 2011

English Household SurveyFebruary 2012

• Owner occupiers:14.45 million in 2011.Down from a peak of 14.79 million in 2005

• Owner occupiers buying with a mortgage made average weekly mortgage payments of £143 (€177; $229)

• Average weekly rent payments of private renting households £160 (€198; $257)

• Average weekly rent payments of social renting households £79 (€98; $127)

• 59% of private renters and 23% of social renters said they expected to buy a home in the UK at some point.

Current Market Conditions

Gross lending, UK

120

160

221

277291 288

345363

254

143 135 141 142

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f

Historical data: Bank of England, Forecasts: BSA

£bn

Current Market Conditions

Net lending, UK

41

54

79

101 10191

110 108

41

12 8 9 100

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f

Historical data: Bank of England, Forecasts: BSA

£bn

Current Market Conditions

Bank of England, BSA

Change in private sector retail balances, UK

33

45

58

69 6875 77

58 58

28 2531 28

0

10

20

30

40

50

60

70

80

90

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f

£bn

Consumer Demand

44%Agree

20%Net

agreement

Disagree(-ve)

-24%

-60%

-40%

-20%

0%

20%

40%

60%

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Now is a good time to buy property in the UK?

Consumer Demand

Perceived barriers to property purchase

64%

53%

56%

39%

18%12%

0%

10%

20%

30%

40%

50%

60%

70%

Jun

-08

Se

p-0

8

De

c-0

8

Ma

r-0

9

Jun

-09

Se

p-0

9

De

c-0

9

Ma

r-1

0

Jun

-10

Se

p-1

0

De

c-1

0

Ma

r-1

1

Jun

-11

Se

p-1

1

De

c-1

1

Ma

r-1

2

Raising a deposit

Access to sufficientmortgage finance

Lack of job security

Affordability ofmonthly mortgagerepaymentsConcern about futurefalls in property prices

Stamp Duty costs

BSA Property Tracker

• Consumers say that credit conditions have eased in September

• Only 3% of buyers put off from property purchase have been refused a mortgage previously

• 23% of first time buyers are put off buying a property due to a fear of being refused a mortgage

• More people think now is a good time to buy a property compared to June 2012.

Recent Performance

• Customer preference swings further in favour of building societies and mutuals

• Trust in building societies remains solid

• Gross lending up 38% in H12012 v H12011

• Mortgage approvals up 45%

• Lending has grown each month this year on a year on year basis

Mortgage Market Review

• Final rules expected soon

• Rules will be accompanied by a robust impact assessment

• Lord Turner has called for a wide ranging debate on the final proposals

BSA messages• Impact assessment must take into account welfare impacts, other regulatory

initiatives and impact of specific consumer groups

• Debate must be inclusive, not exclusive

• Transitional arrangements are critical in order not to disadvantage existing mortgage holders

Mortgage Regulation

• Proposed Directive published March 2011

• Key Concerns:– The inclusion within the scope of the Directive of Buy To Let

mortgages– Provision of advice (the text currently suggests that to give advice,

lenders will be required to advise on products from across the market)

– Pre-contractual disclosure (the potential replacement of the KFI with the European Standardised Information Sheet (ESIS)).

• Still a long way to go:– “Trilogue” negotiations have started but this Directive is not a priority– Concerns remain, but there are also some positives– Final vote in plenary session of European Parliament is scheduled for

December 2012 but expected to slip.

• MMR will not wait

EU Directive on Mortgage Credit

Government Housing Strategy

• "Laying the Foundations: A Housing Strategy for England" published in November 2011.

• Sets out the problems well, but has limited answers for tackling them.

• Focussed on owner occupied and social housing, with shorter sections on the private rented sector.

• Much of the document sets out schemes for providing new homes

• Of primary interest to lenders are the new Right To Buy Scheme, the NewBuy Scheme and support for self build

CQS

• Lenders welcome schemes from regulators to improve standards in conveyancing and to tackle fraud by solicitors.

• The Law Society’s Conveyancing Quality Scheme is a good example of how solicitors can flag to lenders that they are experienced in conveyancing and have robust procedures in place to ensure quality. Many lenders are beginning to require CQS or an equivalent standard in order to gain access to conveyancing panels.

• Any quality marks must be robustly policed and enforcement action taken against any firms not meeting standards.

New technology and land registration

• The consumer journey for buying property in the UK is long and confusing.

• The number of professionals involved in a property transaction, the various processes they must go through and lack of automation contribute to lengthy transaction times.

• We welcome advances in technology which will speed up the process, improve the consumer experience and help to reduce property fraud.

Building Societies Association

Thank you

Rebuilding confidence in the lending market: The role of Rebuilding confidence in the lending market: The role of

UK Building SocietiesUK Building Societies

Presentation to Working Party on Land Administration

United Nations Economic Commission for Europe

11 October 2012

Paul Broadhead

Head of Mortgage Policy

The Building Societies Association