Mortgage loans could be hit by ‘unfair’ bank levy changes, building society boss warns
- Credit: Lucy taylor
Punishing building societies by applying the banking tax to the largest among them is likely to affect the availability of mortgage lending in the future, the boss of a Suffolk mutual has warned.
Paul Winter, chief executive of Ipswich Building Society, said while his own business was not affected by the new bank tax, the effects of the changes announced by Chancellor George Osborne in last month’s summer Budget could be far-reaching.
“Whilst at first glance many people might think that taxing any financial services business can only be a good thing, the application of the banking tax to the largest building societies in the country is likely to have an impact on the availability of mortgage lending in the future,” he said.
Nationwide, Britain’s biggest building society, this week slammed the Government’s new bank tax as it warned the changes will cost it an extra £300million over the next five years.
It said the additional tax cost was equivalent to the capital used to fund £10 billion of lending.
Nationwide chief executive Graham Beale said the changes to the existing bank levy and new 8% bank surcharge, would help international banking groups, but unfairly impact building societies.
“This represents a missed opportunity to support diversity by acknowledging that building societies are different to banks and to recognise the contribution Nationwide and other mutuals make by lending to the UK economy, and the housing market in particular,” said Mr Beale.
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Mr Winter pointed out that unlike banks, building societies can only raise capital they need for lending from their profits. Therefore, anything that hits their profitability will directly compromise their ability to lend.
“Although building societies the size of Ipswich are not impacted by this change, borrowers and those looking for a mortgage in the future may find it harder to get one as a result of this taxation change,” he said.
“Following the financial crisis caused by the poor behaviour of the banks, it was building societies who increased their mortgage lending and picked up the slack from the banks as they stopped lending.
“To now punish the very building societies that supported the return of mortgage growth seems unfair, and could potentially negatively impact borrowers as a result.
“We hope the Chancellor will reconsider the application of this tax so building societies can continue to support the economy with healthy levels of mortgage lending.”
Nationwide is one of a number of lenders to hit out at the Government’s new banking surcharge, with Yorkshire Building Society and challenger banks such as TSB among those to have criticised the move.
Mr Osborne is introducing a new 8% bank surcharge on lenders’ profits above £25million, which will largely replace the existing bank levy by 2020.
From 2021 the levy, which will be set much lower than its current rate, will only apply to UK rather than group balance sheets.