Mortgage growth helps The Cambridge Building Society record £4.1million profit
Finance director Peter Burrows and chief operating officer Andy Lucas discuss strong performance
The Cambridge Building Society recorded profits of £4.1million last year, up from £2.8million in 2016 - and more than double the £1.5million achieved in 2015.
“It’s a significant growth trend,” says finance director Peter Burrows. “It was a really good year for us. Our mortgage book has passed through the £1billion mark for the first time and has grown 20 per cent over the last two years with new lending last year of £240million – just below the record for us in 2016.
“We’ve managed to combine strong growth in our mortgage book with holding expenses broadly flat over that period. That’s a recipe for financial success.”
The rise in profits follows a period when the mutual was investing heavily in a new IT system to improve its service both to customers and to intermediaries, through which three-quarters of its mortgage business is derived.
The building society marked the results by announcing plans to open a flagship new store in St Andrew’s Street at the end of April, replacing its existing stores elsewhere in St Andrew’s Street and The Grafton.
Peter: “We are getting to the point where we are generating what you might call the ‘right’ level of profit. We are mutual, owned by our members. We’re not looking to maximise our profits but make the right amount so we can continue to invest in our business and offer good products and services.
Underpinning the success last year was an innovative core capital deferred share issue, by which Cambridgeshire County Council’s pension fund invested £15million in the society. The Cambridge has pledged to help 1,000 people buy a home with the investment.
“We drew down £5million of this in 2017 and will draw the remaining £10million this year,” says Peter. “With the ongoing strong profitability plus capital investment in the background, that really gives us the capital strength and the confidence to invest in the society and grow for the future.”
In 2017, The Cambridge lent to 1,379 borrowers, who took out a total of 811 mortgages, giving the mutual nearly 7,600 mortgage customers in total.
Andy Lucas, chief operating officer, says: “As a proportion, we’ve lent to more first-time buyers. It’s an area of growth but there’s room for more. It’s an area that’s got more competitive, but we’ve continued to offer 95 per cent loan-to-value products throughout the last decade when quite a few withdrew.”
Affordability, of course, remains a key issue in Cambridge, where high house prices prove prohibitive for many first-time buyers.
“Recently, we’ve been looking at what we can do about loan to income,” adds Andy, “Regulations are in place to avoid another credit crunch and we’ve put a lot of effort into understanding the affordability of a mortgage.
“Property prices have gone up very high but rather than just looking at a crude measure of how much someone earns and how much can they borrow, we are being more sophisticated and using our manual underwriting to look at the real details of a person’s income and outgoings.
“In the second half of last year, and we’re seeing it still this year, the demand for remortgages has grown stronger with the rise in interest rates last November. Mark Carney [the Bank of England governor] has trailed that interest rates might go up once or twice, so people are looking to fix.”
With the population living longer and working longer, The Cambridge has removed its age limit on lending – and this can have benefits for younger buyers.
“We decided to take away the age limit on lending because we felt it’s more about the affordability and suitability of a mortgage,” explains Andy. “We’ve got more 50-plus borrowers now than if you went back five years.
“Our approach is if they’ve got a good income source – and a defined benefit pension scheme is a reliable source of income – or other assets, then older borrowing lending can work.
“We need the whole housing chain to work. There may be empty-nesters who can’t move to downsize because they can’t borrow, so it doesn’t free up the house, so you get a log-jam.”
Mortgage terms are also rising – with 30-year loans becoming increasingly common, although most move to new deals after fixed terms or discount periods.
The Cambridge is currently offering a three-year fixed deal at 1.99 per cent with a maximum loan to value of 80 per cent, and a five-year deal at 2.19 per cent on the same terms.
While low interest rates are welcome for those seeking home loans, what of savers?
The Cambridge grew retail deposit balances from savers by £85million last year, much of it through its branch network, and the money helped it grow its mortgage book.
“For a number of years, we’ve had a fairly static retail receipts as we’ve been able to use government schemes,” says Andy. “The Bank of England has injected some liquidity into the system to encourage lenders.”
“By the end of last year, we’d drawn down cumulatively £75million,” adds Peter. “It’s helpful for organisations like our but looking at the overall market effect it does ease the pressure on all savings institutions, so it has held savers’ rates down a little bit.”
Andy explains: “Even though rates are low in relative terms, people still when they can want to save. It’s a good discipline. As rates pick up, they will start to become more attractive.”