According to David Webster, chairman of the Building Societies Association, mutual lenders have a central role in the provision of mortgage finance, providing competition and choice to consumers and contributing to the stability of the financial system.
Speaking at the association’s 144th annual conference he said that during 2012 and into 2013, mutual lenders have been at the core of the mortgage market, particularly as some big banks have been restructuring their balance sheets and lending less as a consequence.
Over the first quarter of 2013, net lending by building societies and other mutuals totalled £1.9 billion. The figure for all other providers was minus £1.7 billion.
He told the audience that while the current focus of government on the housing market is welcome, a more holistic approach to the challenges of supply and demand are needed, starting at the level of infrastructure planning and this could be more beneficial than individual schemes such as the recently launched Help to Buy scheme.
‘It is to be hoped that as the details of the new Help to Buy Scheme are developed, government has a viable exit strategy. Fannie Mae in the United States was introduced as a similar temporary measure during the Great Depression and 70 years later is a policy headache for the US administration,’ he pointed out.
Webster also pointed out that new measures aimed at large banks are not necessarily right for the small building societies, such as the introduction of leverage ratios. ‘These have been designed for big banks and intended as a back stop measure of capital adequacy which takes no account of risk weighted assets. For the mutual sector, which has lower risk assets, a stable retail funding base, but restricted access to capital it could pose a real risk,’ he explained.
‘If the level set is high and the glide path to implementation is short, far from being a backstop measure it will become the main driver of capital management. Perversely it could make prime residential lending far more capital intensive and therefore less attractive and put the sector at a competitive disadvantage to the big banks,’ he added.
The association believes that a 3% leverage ratio suggested by the Treasury is far more sensible and sensitive to the different structure of the mutual sector than the 4.06% mooted by the Parliamentary Commission on Banking Standards.
‘As more traditional players, in the heady days before the financial crash we often found ourselves labelled boring. Now our back to basics approach is in vogue and standing us in good stead both with consumers and financially,’ said Webster.
‘In terms of culture and behaviour we are closely aligned with the values now desired from 21st century businesses. Our history of just getting on with it with energy and enthusiasm bodes well, but the government can certainly help the sector to continue to provide diversity and competition,’ he added.
