Mutuals whacked by triple whammy

JOHN MURRAY, CONSULTING EDITOR, LENDING STRATEGY

Lending and savings figures from the Building Societies Association show that gross mortgage lending jumped 15% in December 2009 compared with November.

In terms of hard cash that translates into just £497m. And it could have been a blip anyway – some buyers probably brought forward their purchases to take advantage of the Stamp Duty holiday.

If you take an annual perspective the picture is even bleaker. Gross lending in 2009 totalled a miserly £18.6bn compared with £37.5bn in 2008.

Surely things must be brighter on the savings side. After all, just a few weeks ago the Office for National Statistics said the savings ratio had leapt to an 11-year high in Q3 2009 – to 8.6% of income.

But societies’ savings data gives the lie to that. Excluding interest credited to accounts they saw net withdrawals of £400m in December and total balances at mutuals fell by £1bn in 2009 compared with an increase of £19bn in 2008.

Societies are suffering from a triple whammy. Their business model doesn’t work well when interest rates are low and they are facing fierce competition for savings from a state-backed banking sector. Meanwhile, the public’s propensity to save has fallen dramatically.

This shows how tough it will be for societies and other lenders to fund mortgages from retail deposits – a problem exacerbated by their need to refinance existing mortgages that were wholesale-funded before that market collapsed in 2007.