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My Lords, Ladies and Gentlemen. Every year this event brings together people who run, work with, write about and regulate the UK’s 44 building societies,
And the 4 credit unions who joined the BSA more recently.
Looking around the room, I am delighted see so many of you with us.
Together we are part of a wider customer-owned, mutual sector. It is a sector where we co-operate where it is appropriate to do.
We also tend to know each other pretty well, which makes it doubly sad when we lose someone who was a colleague and luminary in the sector for many years.
Last weekend, John Goodfellow, who many of you knew and worked with, passed away.
It seems appropriate to spend a moment to reflect on the significant contribution that he made.
John joined the Skipton back in 1984 in charge of IT. He became Chief Executive in 1991, a position he held for the next 17 years.
He made a huge contribution to the Skipton, including the acquisition and growth of Connells and founding Callcredit, the UK’s third credit reference agency.
He took on the role of BSA Chairman, not once, but twice. The second time during the heat of the financial crisis. During this period, he was effectively an Executive Chairman given how much of his time he gave.
John was a dedicated and larger than life character who is already sadly missed. Our thoughts are with his family.
Today I had hoped to introduce the Housing Minister to you.
Unfortunately, this is the day that the EU Withdrawal Bill is being debated again in the House of Commons.
As this is probably the single most important piece of legislation in Parliament right now, it is not surprising that Alok Sharma is under a three-line whip to be in the House this lunchtime.
On a more positive note, the BSA is arranging a round-table with him for the New Year.
We will be involving a cross section of BSA members in this opportunity.
Before lunch, I am going to spend a few minutes reflecting on my first half-year as Chairman of the BSA.
When I took over back in May, a journalist asked me what would make up my agenda.
The top three things on my list were:
- Taking all possible steps to create the right environment for continued sustainable growth in our sector
- Supporting the BSA’s forward looking agenda around increasing housing supply and mortgage lending in the face of our ageing population AND
- Looking for the sector to blow its own trumpet more loudly where it has cause to do so
The interview then ranged far more widely over some of the operational challenges we all face from ever-changing regulation to cyber-crime.
For those of you whose stomachs are already rumbling, you will be pleased to hear that I am restricting myself to an amalgam of that top three – for today at least.
Right now, the building society sector as a whole is growing and most importantly, it is growing sustainably.
Between us, we have over 23 million members – our customers.
That’s about a third of the UK population and both numbers are rising.
For every one borrower we have, there are six savers. These people have had a tough time in our still very low interest rate environment.
Yet in relative terms, they have done better saving with a building society - £380 million better in the first half of this year alone.
After the increase in the Bank Rate, building societies led the way in passing the benefit on to savers.
The media saw and reported on the positive contrast.
Together we lend billions of pounds to homebuyers across every part of the UK.
Between January and June 2017, that meant the approval of more than 8,300 new building society mortgages every week.
We should be proud that our very diversity means that we not only help people with straightforward borrowing needs, but also individuals and families whose needs, for all sorts of reasons are more complicated.
That means young professionals buying into shared ownership in one of our big cities.
Custom builders fulfilling their dream, possibly more cheaply than they can by buying a standard new build.
Helping those employed in the gig-economy.
And individuals who by the end of their mortgage are ‘older borrowers’.
Now, in times past, we may have translated this to mean those approaching retirement. In fact older means 80 plus.
It is important to make it clear that contrary to some recent press reports, there is no intent to saddle older people, or anyone else for that matter, with debt.
The general rule of thumb of ‘pay off your mortgage over the shortest time you can afford’ holds good.
And of course, all lending must be affordable and for the regulators amongst you properly risk assessed.
However, the fact is that we live in an ageing population and the demographics of our society are inexorably changing.
The traditional first time buyer market we recognise, where young people tend to buy a home in their late 20’s is steadily shifting up the age range.
On this occasion two years ago, my predecessor as Chairman launched an interim report from the BSA entitled Lending into Retirement.
At the time, a couple of the figures he used really struck home.
- That by 2034, almost a quarter of our population will be over the age of 65 – that means over 17 million of us.
- And at the other end of the home owning journey, half of our 25-34 year olds thought they would need a mortgage that lasted into retirement.
Then, as now, this is at least in part due to house prices. In 2015, the average house price in the UK was £200,000; today it is almost £226,000.
A lot has happened in this market in two years – in our sector at least.
Back then, 18 building societies would lend into a borrower’s older years. Today it is 34, with limits of 80, 85 or none at all.
In the first half of 2017, building societies provided almost 60,000 mortgages, which will mature when the borrower is 65 or older.
That is 45% higher than the same time in 2015.
At the same time, albeit from a small base, there has been a 162% rise in mortgages that will mature when the borrower is somewhere between 79 and 84.
For some customers their need comes from buying later for the first time; for others it is about funding a more active lifestyle for longer.
Some are choosing to borrow to help the younger generation of their family, secured on the equity that it has been their good fortune to see grow.
We predict that the peak of this demographic trend is yet to come.
By 2030 we project that the over 65’s will hold around £40 billion of mortgage debt. This is not bad, but it is different.
As a sector, we are proud to have led the way so far, but this country needs a whole of market solution.
For these older borrowers, recognition by the FCA of the value of retirement interest-only mortgages was welcome.
These mortgages are not the same as lifetime mortgages. That is because they do not feature the roll-up of interest, so consumers are not at risk of rapidly eroding equity or reduced funds for a bequest.
Already offered by a few building societies, these mortgages give older borrowers alternatives.
More generally, we all know the issues faced by consumers of any age looking for a decent home to buy or rent.
All of us know that solving this housing crisis is hard.
Indeed, none of us believes that there is a single solution.
It is a complicated challenge. One outlined in the Housing White Paper this February.
I welcome that Government attention has come back to action in this area.
Amongst a number of initiatives, I will pick out the Home Building Fund that will provide a total of £3 billion.
Of this, £1 billion is earmarked for loans for SME builders, custom builders and offsite construction.
The BSA’s attention is most actively on the development of offsite construction and other new housebuilding technologies.
It is here that we believe that building societies can contribute most to increasing the supply of new housing.
Perversely, because these technologies are new in the UK, we have a challenge.
We need to move from niche to mainstream, which requires a market where:-
- These homes are supplied and constructed at volume
- Valuers understand the product, its longevity and value
- Lenders will lend on them as security
- Insurers will insure the completed home and critically
- Consumers want to buy them
To do this we must improve knowledge and understanding.
The Government can bring all the relevant sectors to the table to get things moving.
We welcome the new cross-industry working group, which meets for the first time in December and commit to playing a full and active role in it.
We can also learn from Europe.
Way back in the 1970s, homes built using a variety of modern methods of construction started to appear in the Netherlands.
Today they are accepted and common – with an established track record.
On a recent visit to a town near Amsterdam, called Almere (Almera); a party of building societies and valuers, led by the BSA, saw this for themselves.
They came home knowing that these homes are strong, environmentally sustainable, cheap to run and easy to improve.
That they have passed the test of time and that it was obvious that people enjoyed living in them.
With a lack of skilled labour and traditional building materials, these additional forms of building must be backed if housing supply is to increase.
We all have to be a little bit brave and be prepared think differently.
To do this we need an environment in which building societies and our credit unions can continue to thrive.
Innovating whilst putting out constant fires just does not work.
The state of the economy is of some concern. Indicators show a mixed picture in the near term, but the outlook remains weak.
Consumers are feeling this, through increased prices that are a consequence of the weaker pound.
Research by Ipsos Mori for the BSA shows that most borrowers can cope with a 1% rise in their mortgage rate, but over a third say they have no cash savings.
More generally, I am looking forward to a real boost for the economy in the Budget next week and further strong steps taken to address this housing need.
As an example of the steps that could be taken, and make a real difference, allowing Local Authorities more flexibility to borrow to build is essential.
The £10 billion for Help to Buy is welcome as it gives developers confidence to secure land for building over the next 5 years.
BUT it is clear that substantial and sustained investment is needed to build the numbers of homes that we need.
We can argue about tenure later - let’s just get them built.
It is also time for a more nuanced debate about the use of Green Belt Land for homes. Not all of it is green and pleasant and I am thinking more about the likes of redundant railway sidings.
Until now, I have more or less avoided the Brexit word.
That is because building societies are UK domestic players, and we are not going anywhere.
We are staying right here and we will continue to do what we do best in society – providing a home for savings and savings for a home.
Finally, in closing, I would like to thank Dignity, our sponsors today. This event would not have happened without their continued support.
Thank you and enjoy your lunch.