HELP TO BUY

The government's flagship initiative Help to Buy has attracted "mixed" reaction even before it is launched next January.Heavyweight commentators like  the former Governor of the Bank of England and the chairman of the influential Treasury Select Committee have expressed reservations. I know my own concerns don't carry that kind of punch but it still feels like we are trying to solve a housing supply problem with a demand-stimulus. That risks a future house price bubble and affordability challenges for many borrowers in the years ahead and  at a time when interest rates could well be rising. We simply don't build sufficient new homes in the UK and until that is addressed, then such initiatives feel far too tactical and headline-grabbing. I'm also convinced that if the large banks had followed the example of the mutual sector and continued to lend to furst time buyers in recent times then a government-underwritten  scheme would not be neccessary. Building societies like The Hanley  never evacuated the first time buyer market as we have always recognised that customers with modest deposits are a key link in the lending chain. Over the past year our lending to borrowers requiring a mortgage of 90%+ LTV has shown a substantial increase and we are able to do so prudently and within our own risk-appetite , therefore participation in Help to Buy is not essential for us. The devil is in the detail of the scheme and we will undoubtedly keep it under review but an absence from the list of lenders using Help to Buy is certainly not any kind of signal of a reluctance to lend to first time buyers. On the contrary we are already doing what this scheme is encouraging lenders to do, and therefore we'd need to be persuaded that there are  clear benefits in changing runways when we have a perfectly sccessful  flight path already.          

A TAX ON ASPIRATIONS

Although I've always regarded Stamp Duty as an unfair and distorting  tax due to its "slab" structure I was nonetheless taken aback by its impact in recent years compared to in the mid 1990s as revealed in a report called " Stamping on Aspiration" produced by Homeowners Alliance.  The average Stamp Duty paid on buying a home jumped from £532 in 1996 to £5957 in 2011.......a ten fold increase! Stamp Duty has risen 7 times faster than inflation,6 times faster than average earnings and 5 times faster than house prices since 1996. The government now forecasts that by 2017 it will make as much money taxing people buying their home as it will from the so-called "sin-taxes" on alcohol and tobacco. So much for the governments stated desire to foster conditions which aid aspiring homebuyers .The report concludes that the persistent ratcheting up of Stamp Duty by successive governments is a key reason for the decline in UK home ownership since 2002. Aspiring homeowners have had to tackle the quadruple-whammy of rising rates of duty, new Stamp Duty bands, frozen  thresholds and rising house prices. Given the plethora of current Government initiatives to stimulate demand in the housing market....First Buy / New Buy / Home Buy / FLS ..... surely the time is right to take a surgical knife to Stamp Duty and sacrifice some tax receipts for the prospect of greater affordability and more flexibility for homebuyers.  Short term counter-cyclical measures such as those I've listed may well have some  relevance and impact as the economy bumps along, but more strategic solutions on topics  like Stamp Duty ( and housing supply) though  much tougher to initiate , are the really pivotal changes which could re-mould our housing market for  the decade to come.       

BSA CONFERENCE

This week I completed my tenure as Chairman of the Building Societies Association and passed the baton to my successor David Cutter ( CEO Skipton BS) at our Annual Conference in Harrogate. I have learnt a lot during my time as Chairman and feel very fortunate to have been elected to the role, during a period of immense change in our industry.   I  was delighted to complete my term with a hugely successful conference with high-calibre guest speakers and a sense of optimism and resurgence amongst attendees. Highlights of the week for me included a very thought provoking debate on the future of branches, which included presentations from the CEO of First Direct and the CEO of Yorkshire BS, a quite awe-inspiring talk by Sir Ranulph Fiennes and a superb speech by the former MD of Dyson who reminded us all of the vital role played by innovation in business success. I also sat next to our after-dinner speaker Jeremy Vine on Wednesday night who is  really enagaging and interesting  company and a first-class speaker with a fantastic range of anecdotes from his 25 years in broadcasting. We found that we also shared similar tastes in music, mainly from late 70s stuff like Bowie, The Clash and the slightly more obscure Spear of Destiny. Unquestionably the mood of the conference was that this is a key moment for mutuals as we seek to seize the initiative and advance our market share while competitors in the PLC banking sector remain mired in customer-mistrust and balance sheet rebuilding. But it is also very clear that forward-momentum can only be maintained if building societies focus on delivering what customers really need , whether that is in  first time buyer lending or in helping advise our members on long term savings. We also wish to reinforce our message that mutuals have a contemporary relevance and to do that we acknowledge scope for additional investment in new ways of marketing and distributing our products in the digital arena. Combining  the values & traditions of our roots with a modern zest for outstanding service sounds to me  like a potent cocktail.      

CONFIDENCE IS THE THING

Recently I was asked to open the new Management School at Keele University following the refurbishment of the Darwin Building. Prior to saying a few words to the attendees as a group, I got involved in some conversations about business confidence and the difficulties facing small businesses in making investment decisions when their confidence is fragile. The tone of our discussions reflected the prevailing mood of austerity in the general economy and a sense that many businesses feel compelled to postpone expansionary decisions until the clouds shift. We also spoke of the downside risks of getting the timing wrong and how that can further sap confidence. I was reminded that confidence is the glue that binds so many of our actions as individuals and as businesses. Further evidence that confidence is the thing appeared on my TV screen last night when I watched David Lynn from Trentham golf club, here in Stoke, being interviewd on Sky TV following his sensational round on the first day of the Masters in Augusta. He just personified a quiet, relaxed confidence. The sheer scale of his achievement was overshadowed by the ease with which he got the job done. Of course being a true pro he'd no doubt say that there are still 3 more days to go before the job is done but my point remains; a sense of confidence makes things happen. And the opposite is true too,  absence of confidence allows doubt and fear to prevail . The recently published Financial Services Survey by CBI / PWC on Industry Sentiment  declares that "fresh growth is reported across a range of sectors and customer segments.Rising profitability and an increase in employment reinforce the impression of greater confidence". Lets hope the glue is sufficiently adhesive to bring forward some of those key decisions on business investment.         

TWO EARS,ONE MOUTH

This has been a week of listening for me. It started last Saturday morning when I hosted our quarterly Customer Form where members come along and talk to me about the financial issues that they are most concerned about. As ever , questions and discussion topics spanned a wide spectrum. I was asked about the downgrading of the UKs  AAA rating by Moodys, the prospect of negative Bank of England interest rates in the future, the impact of the Governments Funding for Lending scheme on savers rates, our plans for the branch network, the provision of external audit services by big 4 accountancy firms and inevitably the plight of savers in an economic  environment where spending is encouraged rather than prudent saving . Members attending seemed to welcome the candour of my answers even if they didn't provide a panacea and I think we did generate a bit of light as well as some heat.     In midweek I attended a breakfast meeting at our branch in Hanley to hear how a group of our staff were coping with the challenges of the mortgage market and the impact of rate-compression on customers enquiring about savings rates. It is always a priviledge to  hear stories of outstanding service in difficult circumstances, and those were a feature of my listening mode at that meeting.   I then attended a dinner with 400 guests last night at the Britannia stadium  to celebrate Gordon Banks' 75th birthday, alongside 9 Hanley colleagues who had been particularly successful in their various roles at The Hanley during the past few months and for whom this was a modest recognition of all their hard work and commitment. . As well as listening to tales of success about Englands greatest ever goalkeeper from members of the 1966 world cup squad, I also heard lots of great stuff from my own team about their optimism for the future and the ways we are promoting our excellent product range and our commitment to customer care.I feel  refreshed now, having used ears and mouth in direct proportion this week.

BOARD NEVER BORING

I mentioned to one of my guests at last nights Stoke City v Wigan match ( a cracking game, finished 2-2 with the visitors playing really well in 2nd half, after Stoke dominated the 1st half) that we'd had a Hanley Board meeting earlier in the day, and how much I'd enjoyed it. My guest seemed surprised that I didn't regard the meeting as a functional chore, but I emphasised the spectrum of topics under discussion and the energetic contributions from all 7 Directors around the table. I'm occasionally asked by Society members at our Customer Forums, what exactly do you talk about at Board meetings? so reflecting on yesterdays Board meeting, which was a fairly typical one, I recall diverse and important topics such as;
---- a review of our Key Performance Indicators to assess how we are performing against financial budgets in the first 4 months of our financial year 2012/2013.
---- consideration of the progress made on actions we agreed at our annual strategy day last May.
---- a discussion on how we are contending with current market conditions and key risks in our core markets.
---- a formal review of the Hanley's internal auditors.
---- a discussion on Board succession and recruitment plans.
---- an annual review of our policy on Equality and an annual report from our Money Laundering Officer
---- a discussion on the emerging "conduct risk" agenda as the FCA and PRA replace the FSA.
So quite a pot-pourri of subjects for us to do justice to , all embellished by the  vitality of Board members, keen to see the society continue to  thrive. .....and yes I really enjoyed it!  Crucially our Board meetings are challenging and honest. No hidden personal  agendas. No silo mentality. We also talked about contemporary standards of governance and the logic of inviting an external review by an expert on Board effectiveness.So no sign of complacency. Maybe that's another reason why I enjoy our  Board meetings so much.   

NORTH/SOUTH DIVIDE

The question I'm most often asked when people realise I work for a building society is; what do you think will happen to house prices? I've now become adept at  dodging the desired soundbite response by reminding my inquisitor that forecasting is very difficult, especially if it's the future you seek to forecast ! I have also tried to nuance my response with a reminder of how territorial the UK housing market is, and how London and the south east is practically another eco-system compared to our local housing market here in north Staffordshire. Recent Land Registry figures actually show that the north/south divide is widening; London house prices are up 7% over the 12 months to the end of  October while prices in the north east fell by 5.8%. In fact if you scope into prices in the London Borough of Kensington & Chelsea you will see average price rises of an eye-watering  15.9% in that period. Mortgage lending for house purchases in London is also disproportionately high, up 22% against an  average of +13% nationally, according to the Council of Mortgage Lenders' most recent figures. So the disparity in house prices in favour of  London is unlikely to fade anytime soon and  the north/south divide is a hallmark of the UK market. Which is one reason (but not the only reason) why local building societies like The Hanley have such a key part to play in making mortgage funds available to local housing markets, to such an extent that some of our products are specifically designed for the locality in which we were founded, and upon which our business success is so rooted.  Small, local mutuals like The Hanley can serve local customers with mortgage deals that are not available on a national scale.This is most notable in the first-time buyer market, where frankly we feel a responsibility to assist local people to get on that first rung of the homebuying ladder. So a modest 5% deposit can still be enough to obtain a Hanley mortgage for first time buyers in our heartland, despite what the national media may declare.So sometimes a fragmented, territorial market can have it's benefits, even if it makes that soundbite answer to the house-prices question much tougher to compose.