Sticking to tradition pays off for Newcastle Building Society

The boss of Newcastle Building Society is confident that the institution is on the right course after announcing a rise in profits

Jim Willens, Newcastle Building Society boss
Jim Willens, Newcastle Building Society boss

The boss of Newcastle Building Society is confident that the institution is on the right course after announcing a rise in profits.

Jim Willens said profit before tax for the six months to June 30 rose to £0.8m, from £0.5m for the same period last year.

He is working to re-establish the building society along traditional lines and said yesterday: “The strategy since 2010 has been to concentrate on a traditional building society model, purely focused on lending to members who want to buy homes to live in, and to provide a home for savings.

“The mutual section has done well. Results from those who have stuck to a traditional business model have been strong. Since taking up pursuit of a traditional model we have been heading in the right direction.

“I’m very pleased with progress, very pleased with response from the customers. I’m looking to build on that for the future.”

Operating profit before impairments, provisions and exceptional items rose from £4.3m to £5.8m, the third successive rise.

The society’s prime residential mortgage book increased by £45m during the first half of 2013 and legacy mortgage books reduced by �37m, with greater reduction expected this year.

Willens said: “The society prior to 2010, really before 2008/09, was active in commercial lending, housing associations, buy to let. This historic activity takes time to wind down.”

The society increased provision against investment properties held for sale by £0.8m, to ensure that this wind-down is achieved within the next 12 months. Meanwhile, residential mortgage lending volumes were up in the first half of 2013 compared to the first half of 2012.

In the first six months of this year the society advanced loans to the same number of first-time buyers as it did throughout the whole of 2012. And it has set itself a target of doubling 2012’s gross lending by the end of this year.

Willens said: “The housing market is showing some increased activity but still at very modest levels compared to historical trends. Mortgage rates have fallen following the launch of the Funding for Lending scheme but on the flipside savings rates have also reduced.”

The society’s financial advice subsidiary, Newcastle Financial Services Ltd (NFSL), completed a smooth transition to the new regulatory regime under the Retail Distribution Review (RDR).

Willens said: “The introduction of RDR in January 2013 has presented NFSL with an opportunity as it has caused several financial advice providers to exit the market, or provide services only to high net worth individuals.”

Income from the Solutions division, which looks after banking administration or sales for other financial firms, was flat at �7.8m but this was in line with expectations given the impact of the Funding for Lending scheme on demand for savings balances.

However, Willens reported that a very strong pipeline of new contracts was currently being progressed in this sector, saying: “We’re very good at it.”

Management expenses reduced by £0.5m from £18.4m to £17.9m, reflecting efficiency and cost improvements.

The society’s balance sheet size also reduced, which resulted in an increase in the management expenses ratio from 0.88% to 0.92%.

Mortage payment protection policies (MPPI) and non-MPPI complaints fell, but Willens said: “It is still of concern that over a third of the MPPI complaints coming through are speculative, ie, the complainant didn’t have a product with the society. The society has never sold single premium MPPI and we have not seen any evidence of systemic mis-selling issues.”

It was also disappointing, he said, that there was a further increase in the charge levied by the Financial Services Compensation Scheme in respect of failed banks.

Newcastle Building Society employs 463 members of staff in its head office in Newcastle city centre, 193 at Cobalt business park and 193 in its network of 31 branches.

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