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The role of building societies
Andy Caton
Corporate Development Director
Yorkshire Building Society
The role of building societies
Agenda• Introduction to YBS• Market background• A role for building societies• Open Market HomeBuy• The future?
Yorkshire Building Society• 3rd largest building society
• 1.9 million members
• 131 branches & 71 agencies
• 1.3% UK mortgage market share
• Focus on residential house purchase
• Mutual - owned by our customers
Mortgage Market Background
• Boom in lending…but lower margins
• Competition & pricing
• Customer “churn”
• Growth in BTL & niche areas
• FTBs
• Link to mutuality
80
90
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2000 2001 2002 2003 2004 2005 2006
Basi
s Po
ints
YBS NIM Average PLCs (1) Average Top 3 Societies (2)
(1) Alliance & Leicester, Bradford & Bingley, Northern Rock(2) Britannia BS, Nationwide BS, Portman BS
Net Interest Margin Comparisons
A role for building societies
• Mutual model & historical role• Building society initiatives• YBS product initiatives• YBS & Open Market HomeBuy
OMHB Illustration: How It WorksHouse purchased for £150,000 and sold 5 years
later at £180,000
12.5% Government Equity Loan
£18,750
12.5% YBS Equity Loan
£18,750
75% YBS Conventional Loan
£112,500
20% increase in house price
OMHB Illustration: How It WorksExit Valuation & £180,000 sale price
12.5% Government Equity Loan
£18,750 + £3,750 repaid
12.5% YBS Equity Loan
£18,750 + £3,750 repaid
£22,500 repaid to Gov’t
£22,500 repaid to YBS
£110,000 repaid to YBS
Total paid back £155,000
Equity retained £25,000
75% YBS Conventional Loan
£112,500 loan less any capital repayments over
5 years, say £2,500 = £110,00 outstanding
OMHB Illustration: Affordability
£112,500 OMHB mortgage£142,500 conventional
mortgage (95% LTV)
£150,000 No Deposit
FTB mortgage
• Rate = 6.50%
• £395 fee
• No HLC
• Monthly payment £759
• Total paid over 5 years = £45,924
• Rate = 6.35%
• No fee
• No HLC & £450 c/back
• Monthly payment £998
• Total paid over 5 years = £59,416
• Rate = 5.85%
• £595 fee
• £2,550 HLC
• Monthly payment £904
• Total paid over 5 years = £57,345
£150,000 purchase: OMHB versus some alternatives
OMHB: Experience To Date• Launch preparations
• YBS products & take-up
• Customers profile
• Feedback & improvements
• Issues & risks
• Lessons from the past
• Risks for customers
• Risks for lenders
• Capital markets solutions (and lack of them)
• Some ideas
Future development of shared equity lending
Conclusions• Shared Equity has a role to play in assisting LCHO
• Success of YBS OMHB demonstrates a public/private solution can work
• Good fit with building society core purpose
• A case for more creative thinking
• A new business model required?
Your questions