Skipton boss David Cutter on housing boom and when savers’ low rate misery will end

There are few people in Britain whose finances have not been impacted in some way, however small or large, by the pandemic. 

And for everything that has gone up in value during the past 16 months, some things have come down. 

House prices have risen to stratospheric highs for example, but mortgage rates have become extremely cheap.

Meanwhile, some of those fortunate enough to stay in work have managed to save significant sums as they were not able to spend on going out or holidays, the interest rates on those savings have languished in the doldrums, often being outpaced by inflation – a situation which has worsened in recent months.

‘It’s been such a volatile and interesting time to be a lender,’ says David Cutter, chief executive of Skipton. It is the UK’s fourth-largest building society and also owns the estate agent businesses, Countrywide and Connells

Pulling the strings behind many of these ups and downs are banks and building societies. 

They have had to constantly adjust their positions in line with developments in the pandemic, and their decisions on lending and interest rates remain integral to the money in people’s pockets.

This is Money’s Helen Crane spoke exclusively to David Cutter, the chief executive of Skipton which is the UK’s fourth-largest building society.

Skipton also owns estate agency businesses, Countrywide and Connells.

Together they have 9 per cent of the market share and 1,200 branches, valuing 600,000 homes per year.

We asked Cutter whether mortgage rates can continue to stay extremely low, and whether frustrated savers might see an increase in the interest their accounts pay any time soon.

We also quizzed him on how easy it is to get a mortgage for first-time buyers, self-employed borrowers and those on furlough, all of whom have found things difficult since the start of the pandemic.

Helen Crane: What was it like to be a lender at the start of the pandemic? How did you cope with having to close Skipton branches, and effectively shut down the estate agency business?

David Cutter: Like everybody we have had to face into the pandemic, and it has been a challenging 15 months. It’s been such a volatile and interesting time to be a lender, to be an estate agent, to be a valuer.

This time last year, lenders were all concerned about whether we would suffer mortgage defaults, what would happen to employment and house prices.

In the first lockdown, our estate agency business had to shut all its offices. All the surveyors had to stay at home, so there was a real disruption, an external shock to the housing market.

Skipton's branches were forced to close in the early days of the pandemic, during lockdown

Skipton’s branches were forced to close in the early days of the pandemic, during lockdown

This meant lenders couldn’t get properties valued, so their risk appetite suddenly changed. Lots withdrew from lower-deposit mortgages, and most [were looking for] 25 per cent upfront.

And then on the savings side, a lot of our members are older so they couldn’t go to the branch, or didn’t want to go to the branch.

Luckily we already had a video system which meant we could keep in touch with customers.

HC: How has your position changed now? Have the booming housing market and less dramatic unemployment predictions made you feel more confident?

DC: We don’t think unemployment will peak anywhere near what was forecast originally. 

And while nearly everyone was initially expecting house prices to fall in 2020, we ended the year really strongly and that has continued into this year. The market has been quite a rollercoaster.

In Scotland where the stamp duty holiday ended in March, there was no cliff edge in house sales 

What that means is, lenders’ own capital positions are much stronger than they thought it would have been 12 months ago. 

That has generated better appetite, confidence, and you can see that in terms of mortgage pricing which is getting more competitive by the month. 

Lenders’ risk appetites have changed again, and we have gone back really to pre-Covid levels.

HC: The stamp duty holiday has been a catalyst for house price increases. However, the original £15,000 saving is no longer available, and buyers will be able to save the lower level of £2,500 only until the end of September before the tax will revert to normal. What do you think will happen to the housing market after that? 

DC: If you compare June 2020 to June 2019, mortgage completions were 16 per cent down as a result of lockdown one. But if you compare June 2021 to June 2019 we were 67 per cent up. That just illustrates how hectic it has been and the high levels of activity.

The question is what will happen next. It is early days: we expect it to quieten down a bit, but if you look at what happened in Scotland where their stamp duty changes ended at the end of March, there was no noticeable cliff edge.

We do anticipate a modest reduction, but it is too early to call it and it is something we will be tracking very closely in the weeks and months ahead.

First-time buyers have found rising house prices a challenge. But Cutter says there has not been a 'noticeable drop-off' in mortgage applications from the younger generation

First-time buyers have found rising house prices a challenge. But Cutter says there has not been a ‘noticeable drop-off’ in mortgage applications from the younger generation

There is still that underpinning pent-up demand for people who want to move house, and cheaper mortgage pricing is helping the market.

The real challenge in the housing market is the lack of stock. Some of our estate agent branches have literally a handful of houses to sell, and if an instruction does come up, the house will sell very, very quickly. 

HC: One group that doesn’t benefit from rising house prices is first-time buyers. How are you helping them get on the ladder? 

Mortgages lent to first-time buyers at Skipton 

2019: 5,759

2020: 5,042

2021 to date: 3,478

DC: If you haven’t got a house that you own, it becomes even more challenging to raise that deposit.

We were about the third lender to bring back 10 per cent deposit mortgages [in January 2021], and we brought back 5 per cent deposit mortgages in March. 

We were quick off the mark. Some of the bigger lenders waited for the Government’s mortgage guarantee scheme, which didn’t go live until April.

We are still seeing a lot of interest from first-time buyers and younger applicants who want to get on to the property ladder.

In the first six months of 2020, 49 per cent of our mortgage applicants were under 30 and this year that figure is 46 per cent. 

The challenges are still there for first-time buyers, but it is not as if there has been a noticeable drop-off in the younger age group.

On the savings side, we were the first UK provider to launch the cash lifetime ISA back in 2017 and we now have 158,000 Lisa customers and balances of over £1.1billion. 

They can save up to £4,000 a year and the Government contributes a 25 per cent bonus. 

Since we launched the account we have helped over 33,000 first-time buyers complete on their mortgage and get them on the housing ladder.

HC: Skipton currently offers mortgages with rates as low as 1.02 per cent, for those with at least 60 per cent deposit or equity. Meanwhile, other lenders have rates as low as 0.94 per cent, which is extremely cheap. Can mortgage rates stay this low for long, or should buyers lock in now?

DC: We expect it to continue. With the rates that are less than 1 per cent, the total cost has to be taken into account because they tend to have high fees. 

But mortgage margins [the difference between the Bank of England base rate, which banks and building societies borrow at, and the interest rate they charge customers] have declined in recent months, probably quicker than we initially expected. 

This means lenders’ capital positions are stronger than they thought they would be, which means there is an appetite to compete strongly. 

But actually margins are still higher than they were before Covid, where they got to ridiculous, and I would say unsustainable, levels. 

What happened pre-Covid is that the pricing premium got eroded and there wasn’t a great differential between a 25 per cent or a 15 per cent of a 5 per cent deposit mortgage. Then we went into lockdown, and a lot of people came out of the higher LTV market. 

Now, the real cut-throat rates are available to those with 40 per cent equity or deposits, and they are still higher for those with lower deposits.   

HC: Self-employed people have found it harder to get approved for a mortgage since lenders tightened their criteria at the start of the pandemic. What’s Skipton’s position on this? Are you offering mortgages to self-employed workers?

Mortgages lent to self-employed at Skipton 

2019: 5,843

2020: 5,508 

2021 to date: 3,798 

DC: Yes – but we will look at every case individually. It depends whether they are a sole trader, a limited company, or a partnership. 

Over the past 15 months, a lot of businesses have performed at massively different levels. Some have done really well, and some have been highly impacted. 

That requires more detailed underwriting, and carefully looking at each case on its merits.  

My advice would be to make sure they keep all their records up to date, have a good story to tell about what has happened to their business and be able to explain any variations in earnings. And make sure their credit history is good.

HC: What about those who are on furlough? Would you offer them mortgages?

DC: We have lent to people that are on furlough, and we do take into account what the company has paid them.

It will be really interesting to see what has happened to that last cohort who have been on furlough for a long time now.

Savers have put away billions during the pandemic, but interest rates have remained low

Savers have put away billions during the pandemic, but interest rates have remained low

Are they going to come back to full-time employment, part-time employment or not at all? Time will tell over the next few months as businesses open back up and expand, or unfortunately don’t.

HC: The best easy-access savings deal on the market is still only paying 0.55 per cent interest, while Skipton’s pays up to 0.46 per cent. Is there any hope for savers that rates will increase? 

The key benchmark is the Bank of England base rate, which has been reduced to 0.1 per cent since the start of the pandemic. 

Your guess is as good as mine in terms of when the next move will be, and in what direction, but the markets are assuming it might not be next year, it might be early 2023.  

What does that mean for savers? It’s been a difficult time: I remember describing during the Global Financial Crisis that they were the forgotten victims, as they hadn’t done anything wrong and central bank rates were slashed around the globe.

There has been no appetite to pay higher savings rates, as lenders can borrow cheaply and there is a massive supply of savings 

That is being compounded by the liquidity provided by the central banks. Lenders have access to cheap funding, so we have been able to borrow at 0.1 per cent against collateral. 

There is also now £200billion of additional savings in the market as a result of people saving more and spending less due to the pandemic. 

There has been no appetite to pay higher rates, as lenders can already borrow cheaply and there has been a massive supply of savings. 

You are beginning to see an upturn in savings rates in recent weeks, particularly on variable accounts, but who knows if that is an ongoing trend.  

I think that if there is an increase it will be a modest increase, but as with all these things we will wait and see.

HC: We’ve seen lots of banks closing branches recently, partly in response to them being used less during Covid. Would you consider closing any Skipton branches? 

DC: We have 88 branches from Aberdeen down to Plymouth and we have a lot in the central belt of Yorkshire and Lancashire.  

They are fundamental to our proposition and the majority of our savings come through the branches.

We are not like the banks, because we don’t have current accounts. The banks are trying to force people online, but we see the branches as really integral to our long-term growth plans. 

As well as deposit and savings accounts, we also provide financial advice on investments and pensions, so we want to build relationships with customers and provide financial advice. 

The banks are trying to drive people online with their current accounts and then they can save costs as a result of shutting branches.  

It will be interesting to see consumer behaviour regarding banks when we get back to some sort of normality, and how that will impact the high street. 

Best mortgages