BSA Autumn Statement submission

The BSA submission ahead of the Autumn Statement
Dear Chancellor 

Autumn Statement 2016

Given the significant changes, challenges and opportunities facing the UK as a result of the EU Referendum and what will flow from it, we have set out some thoughts and ideas which we hope will be of value as you develop your Autumn Statement.  Throughout, we have been mindful of the Prime Minister’s emphasis on the need for policies and measures designed to ensure that this country works for everyone.  We stand ready to work with your officials to shape and deliver policies and ideas where the building society movement can contribute to society in the UK, as it has done since its foundation.

In summary, we are calling for the Government to:
  • launch a major public sector building programme,
  • draw on the expertise of our sector to improve the development of future savings initiatives, and
  • publish projections for NS&I financing requirements to give greater clarity for other market participants.
Reaching the million homes target
We welcome the Government’s announcement of the £3bn Home Building Fund to support all private sector builders and the £2bn fund to support ‘Accelerated Construction’ and support new construction methods. However the last time that the private sector managed to build 200,000 new homes in a year was back in 1968.  So today we need as many options for housebuilding as possible to get the supply side back on track and Government has a role to play in this. In addition to the recent announcements, the country also requires a major direct investment in public housing, recognising that there is a limit to what the private sector can build.

Alongside the need to build, the provision of mortgage finance is a key issue. As a sector, we have a vital role to play in the funding of retail mortgages. Between June 2011 and June 2016, building societies lent more than £250 billion and approved 1.9 million mortgage loans, a third of which were to first time buyers. Serving consumers with more complex needs is one of our strengths.  For example, of the 26 lenders operating in self- and custom-build, 24 are building societies. Looking ahead as part of our commitment to lending to aspiring homeowners we are exploring how the sector can support modern methods of construction.

We note the end of the Help to Buy Mortgage Guarantee scheme at the end of this year. You will be aware that no building society signed up to this scheme as they have always been able too high loan to value mortgages without requiring a Government guarantee.

In the current ultra-low interest rate environment building societies have endeavoured to protect the interests of their 21 million loyal savers .  However, the sector cannot divorce itself from the external environment, and it looks likely that the savings rate will remain low in absolute terms for the foreseeable future.

We welcome the Government’s commitment to savings and support the intention behind the Lifetime ISA (LISA) and the Help to Save scheme. Encouraging more people to save is vitally important both for the country and the resilience of individual households. 

Looking ahead to future developments, we would welcome the opportunity to contribute at a far earlier stage to government thinking.  Our knowledge and practical expertise in the savings market could be of value to help smooth and speed up the development and implementation of measures designed to encourage more people to save, either for a rainy day, or to achieve their ambitions to own their own homes.  We would welcome the Government taking steps to simplify the range of ISAs available to make them more accessible and easily understood by consumers.

In relation to the LISA it is essential that the end product is clear and easily understood by the public.  On that basis, we are very concerned about a number of aspects of the current proposals which risk confusing consumers, leading to misunderstanding and mis-buying.  In particular, the conflation in a single scheme of saving for house purchase, which will generally be best in cash, and long-term retirement savings, where stocks and shares will generally be more appropriate.  The current scale of charges for withdrawal is also, in our view, punitive.

The tradition of setting annual targets for National Savings & Investments (NS&I) remains a potentially disruptive influence on the retail savings market, making it more difficult for banks and building societies to plan and manage their funding. In recent years NS&I’s intermittent forays into the savings market have resulted in the withdrawal of significant sums from savings accounts at building societies and banks, often over a short space of time. The 65+ bond offered at the start of 2015 attracted £13.7 billion.

There is a strong case for HMT to set NS&I funding projections on a rolling five-year basis, which would mitigate the disruptive impact of the current approach and would provide strong medium term guidance about NS&I’s likely impact on the market. This would help banks and building societies to plan with more certainty, reducing the risk of disrupting the availability of lending to new homeowners and families looking for job mobility or to move up the housing ladder.

If there is to be another subsidised bond release it should also be available through private sector deposit-takers, so it is less distortionary and is more easily available to consumers.

Next Steps

In conclusion, we call for the Government to:
  • launch a major public sector building programme,
  • draw on the expertise of our sector to improve the development of future savings initiatives,
  • publish projections for NS&I financing requirements to give greater clarity for other market participants.
Yours sincerely

Robin Fieth
Chief Executive