The role of building societies Andy Caton Corporate Development Director Yorkshire Building Society...

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

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2000 2001 2002 2003 2004 2005 2006

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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