Record year for The Cambridge Building Society helps prepare it for uncertainties of 2022, says CEO Peter Burrows
The Cambridge Building Society has reported an outstanding year of results – and its leadership team believes that will prove important amid the uncertainties of 2022.
The mutual finds itself in a strong position after posting a record £11.9million in profit before tax for 2021. It lent £318million in mortgages, a third more than the previous year, and found the demand for savings remained strong, despite the low interest rate environment.
It has also extended its footprint by opening a store in Bury St Edmunds and continued its Making the Difference programme of community activities and charitable giving.
CEO Peter Burrows is understandably pleased with the society’s progress, which comes after a period of strategic growth designed to help The Cambridge deliver on its mission of helping more people get
a home.
“If you look at what we’ve done in the last five years, we’ve grown the business about 50 per cent,” he points out. “Some of that is really beginning to flow through to steady-state profits. The cost of running that in is behind us.”
Of course, 2021 was not a ‘normal’ year for any industry.
“There was some pent-up demand,” acknowledges Peter, in reference to those who moved home last year after the challenges of doing so amid the first year of the pandemic. “There was also the tapering off of stamp duty a couple of times in the year, which caused real surges in activity.
“The mortgage market is pretty strong and was quite strong throughout 2021. Average house prices went up by around 10 per cent in 2021 and a bit more in East Anglia – around 12 per cent.”
The Cambridge’s mortgage book grew overall by 4.3 per cent last year, and it has strong liquidity assets of £303m, with total asset growth of 1.6 per cent.
June 2021 was a particularly busy month for the society, as it completed 254 mortgage transactions, totalling more than £51m of lending, which is a record since its formation in 1850.
But the profit recorded by The Cambridge for 2021 was, Peter stresses, out of the ordinary.
“It was significantly ahead of where we would normally be. We recognise that this was an exceptional year and things will now settle back to a much more sustainable profit growth curve, but it’s nice to have that booster year.
“It adds to capital and enables us to make some investments that we might otherwise have had to do over a more extended period of time,” he says.
“But being a mutual we don’t have to chase the highest profit possible. We can do what we think is right.”
The society’s capital reserves now stand at a healthy £110m and its headcount has grown by 15 to 225.
Richard Brockbank, The Cambridge’s chief financial officer, explains that the society benefitted last year from a number of one-off financial market movements on its interest rate swap portfolio that it holds for risk management purposes, meaning the £11.9m profit before tax figure – which compares to £4.8m in 2020 – should be put in context.
“We’ve demonstrated that we’re improving the business but it does mean 2021’s profit really is exceptional. We can’t do that every year. Notwithstanding that, the profit trajectory is really nice. It’s really helpful to have a strong balance sheet position. We want to be able to continue, come what may, to make investments in the branch network and our Making the Difference programme.”
Peter notes: “We are seeing things tighten this year. There are lots of things going on. There’s the terrible situation in Ukraine. As an entirely UK-focused business, we are immune from the first order effects, but there will clearly be a lot of fallout. And the cost of living and inflation are really beginning to bite on a lot of people – both our own team members and also our customers.
“CIPH [Consumer Prices Index including owner occupiers’ housing costs] has come out at 5.5 per cent, which is higher than it’s been for some time. So there are macroeconomic storm clouds on the near horizon and we are looking at a tougher year in 2022.”
Things are tough enough already, of course, for those trying to get a foot on the housing ladder in Cambridge.
“The challenges for first-time buyers remain and are really quite significant,” agrees Peter. “At the turn of the century, for most people average house prices were between two and six times their salary. Now most people live in a four to 10-times zone, and East Anglia is at the higher end of that.
“One thing we did see in 2021 is the growing popularity of shared ownership mortgages – mortgages that enable people to buy a proportion of a home with the expectation that if things go well, through staircasing, as it’s called in the industry, they can buy a subsequent portion and end up buying the whole home.
“It enables people to get the home they want in a more affordable way in the early years. It’s a market we’ve been serving well.”
During the last year, The Cambridge extended its support to first-time buyers by reintroducing a range of mortgages that require only a five per cent deposit.
And on Monday (March 28), it announced new lending criteria to make it easier for people to purchase new and resale houses and flats.
A five per cent deposit mortgage is now available for anyone buying a new-build house – registered in the last two years – while those looking to purchase a new-build flat can access a 15 per cent deposit mortgage, which includes studio flats larger than 35 square metres.
The society also expanded the definition of family members it can accept gifted deposits from.
Other changes to lending criteria include an increase in the interest-only mortgage age from 75 to 80 and maximum loan amount from £500,000 to £750,000, together with the relaunch of a buy to let ex-pat range.
Of course, with the Bank of England having put up the base rate more than once recently, the cost of borrowing is beginning to rise.
“We, like everybody, have been responding to recent Bank of England rates. We’ve been doing that on the savings side as well as the mortgages,” explains Peter. “Our objective when there’s a bank rate change is to make it as close to profit neutral for us as we can. We’re trying to pass it on fairly to mortgage borrowers and savings depositors.
“Fixed rate mortgages are even more popular than they were a year ago. It’s fairly clear why. People are seeing rates going up and have heard the Bank of England say rates may have to go up further in due course.
“In common with most of the market, we’re also seeing people prepared to buy themselves out of an existing deal in order to lock-in for a new longer-term deal. People are taking the view that a bit of cost now to fix their mortgage for the next few years as rates are expected to rise is a bet worth taking.”
Encouragingly, arrears levels remain low, with almost all borrowers who took the opportunity to defer mortgage payments with The Cambridge during the pandemic returning to full payments.
The Cambridge also re-entered the help to buy, holiday let and self-employed markets last year, having temporarily withdrawn from them at the start of the pandemic.
Savers, meanwhile, may welcome the uptick in interest rates after a period of historic lows, although Peter notes that the savings market has remained strong.
“There is some polarisation in the market. People who have got the most to save are perhaps the people who found they have been spending less during the pandemic so have even more to save,” he suggests.
“So we’ve seen a lot of savings coming in over the last couple of years and that’s been buoyed by the government putting a fair bit of liquidity in the overall financial services market in the UK to ensure there were no wobbles arising from the pandemic. Rates are still pretty low, by historic standards, although they have been ticking up. We’ve been trying to pay a little bit more on savings than average.
“We’re of a size where we can’t buck the market trend too much. If we’re too far ahead, then everybody flops to us and it becomes a case of unsustainable inputs.”
The Cambridge also boasts some market-leading regular savings products for members-only. These pay interest of up to three per cent on regular monthly deposits of £250. And last year, the rate was increased to five per cent for those who have been with The Cambridge for three years or more. More than 1,700 people have taken the mutual up on the offer.
“We’ve been trying to reward our longer-term customers as much as we can,” notes Peter.
Richard saw measures announced in the Chancellor’s Spring Statement last month as “acknowledgment of the cost of living crisis”.
“We worry about that,” he adds. “It’s one of the big forces we’re subject to this year and another reason we’re pleased to have that very secure position, so we can remain a good employer for our people.
“We’ve taken pride in recent years in being an accredited Living Wage employer and we’ve announced a decent pay review for this year, but we remain alive to the ongoing pressures on our people and our members.
“I’m speculating, but perhaps we’ll start to see a reversal of some of the savings market trends during the pandemic, when people were net depositing. Perhaps we’ll see net withdrawals. For those who can still afford to save, it might drive rates up because banks and building societies will be keen to hang on to funding.”
For the major financial decisions, The Cambridge continues to see a demand for its branch network, which it has been steadily refurbishing.
It relocated its Histon branch up the road last year, and opened its new Bury St Edmunds store in January.
“We’re really excited about that. We’ve already opened more new accounts than we thought we were going to see,” reveals Peter.
“We had some feedback from someone in Bury St Edmunds opening an account with us, saying ‘I know I could open an account online with you, but now I can see you, that gives extra confidence that if there’s ever a problem, I can call in’. It’s an interesting dynamic.
“When we look at the number of branch transactions we’re doing, we can see there’s an ongoing decline and the pandemic slightly accelerated that because a number of people were forced into having to do things on the phone or set themselves up on the app, and found it was convenient, so carried on. But customers do value our high street presence, which is why we’re committed to staying there.
“The simpler things that people can do are naturally being done digitally, but the more complex things where you might need to talk to somebody, like a mortgage advisor, people want to meet, either at home or in store.
“Our mantra is around wanting to give people options and fluidity and let them choose how they do that. We think that’s really important. We know anecdotally that people really value stores being there, even if they don’t always use them that often.”
Having already refurbished seven stores and, during the pandemic, its head office in Cambridge’s Newmarket Road, the society is now embarking on a year of digital investment to be carried out by its IT team, fresh from winning a national award for some of its work.
“We have some major IT work to do. It should help us improve customer service and help us host a broader range of products and give us process efficiency,” says Peter.
Customer service, he notes, remains “incredibly important” to what the society offers. A recent independent survey found 93 per cent of customers said The Cambridge met or exceeded their expectations, while intermediary advisors gave it a 98 per cent approval rating. There’s plenty to live up to in 2022, then.
Continuing to make the difference
The Cambridge Building Society’s Making the Difference programme – which features a range of community support initiatives – is now demonstrating its value, says CEO Peter Burrows.
A community fund, financed by a share of dormant savings accounts, has reached £660,000 and gave out grants worth £25,363 last year, with Cambridge Cyrenians, Disability Huntingdonshire (DISH) and CHS Group benefitting.
“We’re really now seeing the benefits of that fund and it is beginning to make grants in a twice-yearly cycle to local groups focused on homes and housing issues,” says Peter.
This year, £10,000 has been announced for Wintercomfort and £6,800 for Hope into Action – two homelessness charities.
Meanwhile, more than 1,000 hours of community work was carried out by staff with local charities, despite the challenges of the pandemic.
Cambridge Women’s Aid has been chosen as the charity for 2022, meaning there will be match funding from the society during the year and a small donation for each AGM vote, to encourage participation.
Another key feature of the society’s Making the Difference programme is its three ‘Rent to Home’ properties. Those who win the ballots for these are able to live in them for up to three years, during which time they are given 70 per cent of their rent back towards a deposit on buying a new home, with a mortgage from The Cambridge.
“It’s amazing to think that the first Rent to Home beneficiaries are now reaching the end of their term,” says Peter.
“They are going to shortly go through the process hopefully of buying their own home, and moving out of the flat, which is good because we can see the full cycle of the success story of someone getting the full benefit of that scheme, and we can welcome someone else in.
“One of the reasons we exist is to do that community-focused work and, in particular, to help around homes and housing.
“As an organisation, if you were to ask, ‘Why are you here?’ We wouldn’t reply, ‘To do mortgages and savings’, although fundamentally that is what we do. We would reply, ‘We’re here to help people get a home and get a roof over their head’.”
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