Leeds Building Society chief executive Peter Hill is full of optimism over the Government’s change of tune around housing policy
Given Peter Hill’s 35-year career in financial services, one could be excused for thinking his enthusiasm for the profession might be waning. But the Leeds Building Society chief executive and Council of Mortgage Lenders chairman is as animated as ever and optimistic that government housing policy is finally turning a corner.
Hill began his career as a tea boy for NatWest, working his way up through branch roles to area management before joining Leeds, where he made it into the boardroom and ultimately landed the top job.
“My other two career choices were jet pilot and rock star but, as I didn’t have the talent for either of those, I got a job at a bank,” he jokes.
Hill has been loyal to his employers, having worked for only two since leaving school.
“I’ve always stuck around for a long time in whatever I’ve been doing,” he remarks.
He is to stay on as CML chairman until the body is merged in 2017.
When Hill took the position of chief executive at Leeds in 2011, the UK was still feeling the effects of the financial crisis but there were some green shoots of recovery.
“There was instability in Europe and we were all concerned about Portugal, Italy, Ireland, Greece and Spain. There was talk about the eurozone splitting,” he says.
“Although in the UK we were still in recession, it was starting to feel like we were moving out of that.”
In the mortgage market there was nervousness, he remembers. “It was very subdued. The narrative was very much about how difficult it was to get a mortgage, and lenders not lending. Some of our banks were under severe pressure.”
It was not the easiest time to be trying to make his mark as the new boss, but one significant factor worked in Hill’s favour.
He says: “At Leeds, we had come through the financial crisis in pretty good shape; we were expanding our lending book. We had been managing the crisis and now we needed to start looking forward.
“From the start of my journey as CEO, it was about turning heads to look to the future.
“We asked ourselves: ‘What does a mid-tier lender with aspirations do to continually be relevant in a growing and competitive market?’ Particularly because we were seeing new entrants and challenger banks coming in.”
The answer was to focus on creating a distinctive proposition in a number of market niches that Leeds calls its “anchor segments”: namely, buy-to-let, affordable homeownership and interest-only.
Hill says this approach enables the lender to both create value for the customer and provide a meaningful solution for the broker.
In the buy-let space, Leeds distinguishes itself by accepting longer-term tenancies, unlike many lenders that are willing to contemplate only shorter ones.
Hill says: “A number of lenders will now accept longer-term tenancies, but most will only go to a maximum of three years and we are among the few with no maximum. We provide flexibility and accept tenancy agreements for a period to suit both the tenant and the landlord, and will not now stipulate a maximum tenancy period.”
The lender says it takes a flexible underwriting approach, which means it considers a landlord’s excess disposable income as well as their proven rental performance. It lends up to age 80.
In the affordable housing segment, Leeds accepts a borrower share of up to 95 per cent in shared ownership cases. It also considers applications with planning consent restrictions.
Finally, in the interest-only segment, Leeds permits sale of property as the repayment vehicle for up to 60 per cent LTV.
“We will look at cases that don’t fit the standard package around affordable homeownership and see what we can do,” says Hill.
The lender is now almost entirely intermediary only. Hill explains: “We do lend direct but, in the past five or six years, our intermediary lending has grown much more strongly. The direct side is more capacity constrained but, in terms of the proposition that intermediaries present to the customer, it is very relevant and compelling.
“The way regulation has played out has created an environment that works for the intermediary. As we have grown, our physical capacity in the direct side of the business just hasn’t been able to keep up, so we are now at about 90 per cent intermediary. What that means is, if a customer wants to come direct we can serve that customer, but we expect and are geared up to serve the intermediary market.”
This strategy seems to be working well for the mutual. Its latest financial results for the six months to the end of June 2016 show a 5 per cent annual increase in pre-tax profits, from £55m to £58m.
New residential mortgage lending increased by 33 per cent to £1.93bn (June 2015: £1.45bn), which the building society says is significantly above its “natural market share”. Net residential lending increased to £919m from £668m, and the total residential mortgage balance rose to £12.2bn from £10.4bn.
Leeds has also created 140 new roles within the business as it looks to grow capacity.
Hill is particularly pleased with some of the improvements the building society has made to its broker offering.
“We went from nine business development managers in 2011 to a team of approaching 40, which includes telephone-based BDMs and those on the road. We have invested in service,” he says.
“At the start of the year we extended the availability of our telephone helpline for brokers, so we went to 8am to 8pm seven days a week supporting the broker market.
“We invested in more underwriting capability. We piloted same-day instruction and valuation, which we found went really well. It got us to a much quicker offer turnaround time. We also rebuilt our broker front-end website to make it easier for brokers to navigate.”
In his role as CML chairman throughout 2016, Hill has had the opportunity to reflect on the forces that affect the entire lending industry, not just Leeds Building Society or the mutual sector.
After a momentous year that has seen the British public vote to leave the EU and a new prime minister, it would not be surprising if housing had slipped down the political agenda. However, Hill believes there is cause for optimism.
“I genuinely think we have seen a change of tone from the Government around housing policy,” he says.
“The area where I feel the greatest degree of satisfaction as far as 2016 is concerned is that housing policy has become firmly embedded at the top of the political agenda, and you can see that quite strongly. The recent changes in leadership in the Government, the appointment of a new housing minister and some of the narrative coming out are all very positive. We feel it’s different from what we’ve heard before.”
For Hill, the change in political narrative has put housebuilding at the forefront once again.
“If you look at the past 100 years, for the first 60, housing policy was about supply; it was about building houses. The past 40 years have been about homeownership and, during this time, the volume of building compared to the first 60 years has reduced dramatically.
“The tone now is much more about supply and much less focused on specific tenures. I think that’s a really positive thing coming from the Government. The CML is very pleased that things we have been talking about for a very long time have been picked up.”
Nevertheless, Hill thinks even more needs to be done to give housing policy the prominence it deserves.
“The fact that we have seen so many housing ministers over the past 20 years, and it is not a secretary of state position, means the role is perhaps seen as a launchpad, whereas you hear senior politicians talking about other positions in government as being the job they have always wanted. Housing minister tends to be seen as a steppingstone.
“Where I feel we are getting to this year is the recognition that housing really matters to the British people. It is one of the fundamentals that needs to be sorted out and it has become a crisis,” he says.
The Government has promised to publish a white paper on the subject in January, which Hill welcomes. “We hope it will be pretty clear in terms of how we make things happen. We need to start to see this as a very long-term challenge.
“It needs to start with education policy because we are not bringing through sufficient apprentices with traditional skills. There also needs to be consideration of the efficient use of existing stock; empty bedrooms.”
He adds: “We need to ask some challenging questions around whether we are meeting the needs of homeowners in later life. Or are people finding that they are staying put because there isn’t an adequate solution? There is nothing attractive for them to move into; no pull factor.”
Hill also wants to see more innovation in planning reform and is keen on concepts such as Lord Matthew Taylor’s proposal to get every rural council to build at least one garden village of up to 5,000 homes, which could create one million new dwellings across England.
However, Hill believes above all that cross-party consensus and co-operation are required to solve the problem.
“The housing crisis in this country is of sufficient importance to real people to bring together the political parties across the board to commit to a housing policy that goes beyond a five-year reset, and to put some real leadership behind it,” he argues.
Turning to regulation, there are some areas of overlap that Hill would like to see corrected.
“For example, the Financial Policy Committee’s loan-to-income limit that was introduced in 2014. At the time I could see the relevance, but the MMR operates in parallel and probably does what needs to be done without additional regulatory overlays.”
However, Hill is pleased that the Prudential Regulation Authority is not taking lightly its competition remit.
“We have seen clear evidence that the PRA is taking that competition responsibility very seriously. It has a specialist unit to support new entrants and challenger banks. More competition in the market is better for consumers, but some of that thinking works well for building societies.
“We’ve got European and global regulation playing out, but we also have a prudential regulator that recognises that parts of the market will need support, generating different responses.”
This support will be crucial, says Hill, as building societies navigate the regulatory challenge of meeting new requirements on loss-absorbing capital.
The intermediary market, too, will face considerable challenges, he warns.
Putting himself in brokers’ shoes, Hill says: “None of us are immune from the pace of technological change and I think that embracing new technology will be a challenge for intermediaries, particularly getting their heads around where robo advice fits in to the broker proposition.
“There are models out there that may be coming to market soon that could significantly disrupt the traditional broker model.”
However, Hill believes there will always be a role for good mortgage advisers.
“Brokers are well placed to respond to some of those challenges because mortgages are a major buying decision, not an everyday purchase.
“Smart consumers know that sometimes it’s a good thing to take some advice from somebody who understands the market,” he says.
PETER HILL – CURRICULUM VITAE
BORN Oldham, 1961
EDUCATION Stockport Grammar School
1979/97: Various roles, from office junior to area manager, NatWest
1997/2001: Regional retail manager, north region, NatWest
2001/04: General manager, sales, Leeds Building Society
2004/11: Operations director, Leeds BS
August 2011: CEO, Leeds BS
HOBBIES Tennis, walking, sailing, collecting/ drinking fine wine, rugby league, rock music
FAVOURITE FILM Top Gun
FAVOURITE BOOK Piece of Cake by Derek Robinson (Biggles for grownups)
FAVOURITE BAND Def Leppard (albeit I have seen Motorhead nine times)
SIGNIFICANT ACHIEVEMENT Building a 4m-diameter ornamental pond. Never again