The role of building societies
The role of building societies
Andy Caton
Corporate Development Director
Yorkshire Building Society
Agenda
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Introduction to YBS
Market background
A role for building societies
Open Market HomeBuy
The future?
Yorkshire Building Society
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3rd largest building society
1.9 million members
131 branches & 71 agencies
1.3% UK mortgage market share
Focus on residential house purchase
Mutual - owned by our customers
Mortgage Market Background
Boom in lending…but lower margins
Competition & pricing
Customer “churn”
Growth in BTL & niche areas
FTBs
Link to mutuality
Net Interest Margin
Comparisons
190
180
170
160
Basis Points
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150
140
130
120
110
100
90
80
2000
YBS NIM
(1)
2001
2002
2003
Average PLCs (1)
2004
2005
2006
Average Top 3 Societies (2)
Alliance & Leicester, Bradford & Bingley, Northern Rock
(2) Britannia BS, Nationwide BS, Portman BS
A role for building societies
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Mutual model & historical role
Building society initiatives
YBS product initiatives
YBS & Open Market HomeBuy
OMHB Illustration: How It
Works
House purchased for £150,000 and sold 5 years
later at £180,000
12.5% Government Equity Loan
£18,750
12.5% YBS Equity Loan
£18,750
75% YBS Conventional
Loan
£112,500
20% increase in
house price
OMHB Illustration: How It
Works
Exit Valuation & £180,000 sale price
12.5% Government Equity Loan
£22,500 repaid to Gov’t
£18,750 + £3,750 repaid
12.5% YBS Equity Loan
£22,500 repaid to YBS
£18,750 + £3,750 repaid
£110,000 repaid to YBS
75% YBS Conventional
Loan
£112,500 loan less any
capital repayments over
5 years, say £2,500 =
£110,00 outstanding
Total paid back £155,000
Equity retained £25,000
OMHB Illustration:
Affordability
£150,000 purchase: OMHB versus some alternatives
£112,500 OMHB mortgage
£150,000 No Deposit
£142,500 conventional
FTB mortgage
mortgage (95% LTV)
• Rate = 6.50%
• Rate = 6.35%
• Rate = 5.85%
• £395 fee
• No fee
• £595 fee
• No HLC
• No HLC & £450 c/back
• £2,550 HLC
• Monthly payment
£759
• Monthly payment
£998
• Monthly payment
£904
• Total paid over 5
years = £45,924
• Total paid over 5
years = £59,416
• Total paid over 5
years = £57,345
OMHB: Experience To Date
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Launch preparations
YBS products & take-up
Customers profile
Feedback & improvements
Issues & risks
Future development of
shared
lending
•equity
Lessons from
the past
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Risks for customers
Risks for lenders
Capital markets solutions (and lack of them)
Some ideas
Conclusions
• Shared Equity has a role to play in assisting LCHO
• Success of YBS OMHB demonstrates a public/private
solution can work
• Good fit with building society core purpose
• A case for more creative thinking
• A new business model required?
Your questions