The role of building societies

Andy Caton

Corporate Development Director

Yorkshire Building Society

The role of building societies

Agenda• Introduction to YBS• Market background• A role for building societies• Open Market HomeBuy• The future?

Yorkshire Building Society• 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

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2000 2001 2002 2003 2004 2005 2006

Basi

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YBS NIM Average PLCs (1) Average Top 3 Societies (2)

(1) Alliance & Leicester, Bradford & Bingley, Northern Rock(2) Britannia BS, Nationwide BS, Portman BS

Net Interest Margin Comparisons

A role for building societies

• Mutual model & historical role• Building society initiatives• YBS product initiatives• YBS & Open Market HomeBuy

OMHB Illustration: How It WorksHouse 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 WorksExit Valuation & £180,000 sale price

12.5% Government Equity Loan

£18,750 + £3,750 repaid

12.5% YBS Equity Loan

£18,750 + £3,750 repaid

£22,500 repaid to Gov’t

£22,500 repaid to YBS

£110,000 repaid to YBS

Total paid back £155,000

Equity retained £25,000

75% YBS Conventional Loan

£112,500 loan less any capital repayments over

5 years, say £2,500 = £110,00 outstanding

OMHB Illustration: Affordability

£112,500 OMHB mortgage£142,500 conventional

mortgage (95% LTV)

£150,000 No Deposit

FTB mortgage

• Rate = 6.50%

• £395 fee

• No HLC

• Monthly payment £759

• Total paid over 5 years = £45,924

• Rate = 6.35%

• No fee

• No HLC & £450 c/back

• Monthly payment £998

• Total paid over 5 years = £59,416

• Rate = 5.85%

• £595 fee

• £2,550 HLC

• Monthly payment £904

• Total paid over 5 years = £57,345

£150,000 purchase: OMHB versus some alternatives

OMHB: Experience To Date• Launch preparations

• YBS products & take-up

• Customers profile

• Feedback & improvements

• Issues & risks

• Lessons from the past

• Risks for customers

• Risks for lenders

• Capital markets solutions (and lack of them)

• Some ideas

Future development of shared equity lending

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