Update: Ipswich Building Society chief warns of Help to Buy ‘overheating’ risk
16:12 26 February 2014
The boss of Ipswich Building Society has warned that the Help to Buy scheme, launched by the Government last year to boost demand for homes, poses a risk of “overheating” in the housing market.
Chief executive Paul Winter sounds the warning in the society’s annual report for the 12 months to November 30, which reveals that its total assets have topped £600million after another year of solid growth.
An increase of 4.3% took the value of the society’s balance sheet to £601m, against £576m at the end of the previous year and £500m in 2010.
Savings balances increased by 4.8%, from £524m to £549m, with mortgage balances rising by a similar margin, from £463m to £485m.
The society’s pre-tax profit grew by 12.5%, from £2.81m to £3.16m, while its administrative expenses ratio − running costs as a proportion of assets − dipped from 1.07 to 1.06.
“2013 has proved to be another successful year with a unique set of challenges,” says Mr Winter in his annual report. “During the year, we had to balance our lending aspirations whilst delivering a major IT change programme.
“We continued to ensure we offered an excellent service to our members, saw retention rates on our products reach 95% and our newest agencies in Mildenhall and Newmarket increase their membership levels.
“We concentrated on prime residential mortage lending using our personal underwriting to meet the needs of a wide range of borrowers and ensure we achieved a reasonable margin to continue to build our capital in the longer term.”
Mr Winter says the society’s lending continued to focus on first-time buyers and those with low deposits, including a 5% deposit mortgage and a “sweat equity” scheme in partnership with Orwell Housing Association under which borrowers can increase their equity stake in a new-build property by completing some of the work themselves.
He adds that, because the society was already lending to people with deposits as low as 5%, it had not needed to join the Government’s Help to Buy scheme, which was announced in last year’s Budget, and he warns that the initiative is not without its risks.
“Superficially, Help to Buy may be a useful tool to increasing home ownership,” he says. “However, during 2013 we saw the housing market begin to revive and it is concerning that the Government quickened its pace of introducing the scheme with the risk of overheating the housing market.”
Mr Winter adds that, towards the end of the year, the society did draw down funds under the Government’s separate Funding for Lending Scheme, which offers cheap funding for lenders, to ensure it remained competitive in the mortgage market, but says that the Bank of England’s subsequent removal of mortgages from the scheme will not compromise the society’s future lending plans.
The annual report also reveals how the society has continued to help local communities, with fundraising during the year totalling £37,500 and staff providing 323 hours of volunteering, alongside its ongoing support for money management skills.