Local: So far, so good for Newcastle Building Society

Having been at the sharp end of the chaos unleashed during the last recession, it’s no surprise that banks and building societies are cautious about the future right now. Publishing its half year results yesterday (July 29), Newcastle Building Society is in as strong a position as chief executive Andrew Haigh could have hoped for but, as he tells Richard Dawson, the society is keeping a close eye on where the economy goes next

It’s been an interesting six months at Newcastle Building Society.

The North East mutual, like every other financial institution, is still trying to come to terms with the full implications of the coronavirus pandemic.

Announcing its half year results, the society’s performance was about as strong as could be expected in the age of COVID-19, with profits down a relatively minor £1.2 million compared to the same period in 2019.

Total operating profit for the first six months of 2020 was £7.3 million, down from £8.5 million year-on-year.

The fact that Newcastle Building Society remained profitable at all during the sharpest economic contraction in modern history indicates that the fundamentals of the business are sound, with good levels of liquidity and robust capital flows.

Chief executive Andrew Haigh says: “From the financial performance, you can see that we had a very good first quarter followed by a very different second quarter. Nonetheless, we’ve been able to show that the underlying business is robust and resilient.”

The key concern for the society moving forward is how the economy recovers in the months ahead and what this will mean for mortgage repayments.

£5.1 million of operating profit has been ringfenced to account for an anticipated rise in mortgage arrears, as more people lose income or are made unemployed and find it difficult to meet their financial obligations.

The society is also currently only offering 80 per cent mortgages, both to protect itself and to protect customers, until the economic situation becomes clearer.

Andrew adds: “We have to keep an eye on what might happen to the economy and what might happen to people’s ability to pay mortgages because we know that the economic impact is only just beginning to be felt.”

Prior to the pandemic, Newcastle Building Society had been growing from strength-to-strength, opening new branches in communities right across the North East and expanding the service offering at its subsidiary, Newcastle Strategic Solutions.

The society reported gross mortgage lending of £357 million in the first half of 2020, down just six per cent year-on-year. When you consider that the UK housing market declined by 50 per cent between January and May, the society’s progress looks even more pronounced.

As for the outlook for the mortgage market in the second half of this year, many have been buoyed by the new incentives and subsidies announced by Government, particularly on stamp duty land tax, which are aimed at stimulating more activity.

The latest figures on mortgage approvals from the Bank of England show that, in June, there were 40,010 mortgages approved for house purchases, up from a record low of 9273 in May.

This shows that the stimulus measures have been well received but it is also the result of pent up demand that couldn’t be fulfilled during the lockdown.

Andrew continues: “We’ve been encouraged by what we’ve seen with the mortgage market so far, under the circumstances. I think anything that can support people to pay their mortgage and can support the housing market is very helpful.

“It’s good to see that, so far, the housing market has held up.”

As well as maintaining profitability, Newcastle Building Society has redoubled its commitment to the community by making several donations to local charities.

£100,000 was donated to the North East Coronavirus Response and Recovery Fund delivered by the Community Foundation and £35,000 of crisis-focussed grants were delivered through the society’s own community fund.

A six-year £1.5 million commitment to Newcastle United Foundation for the development of Murray House Recreation Centre will still go ahead.

“We have made it one of our priorities not just to continue, but to increase, our support for our local communities throughout the lockdown and most importantly, into recovery,” the chief executive explains.

The best performing area of the mutual in the half year results was Newcastle Strategic Solutions, which secured a £1.2 million growth in income to £18.7 million.

The subsidiary provides outsourcing services to other banks and financial institutions, recently developing and launching a mobile savings app, which its parent company was the first to adopt.

Andrew adds: “Newcastle Strategic Solutions has grown a lot for us in recent years and has had a very busy period through this crisis. We see growth in parallel in both parts of the organisation moving forward.”

Braced for a challenging end to 2020, yesterday’s results signal that the North East’s largest mutual will be able to rise to it.

As for the housing market in general, the mortgage approval data for June taken together with the stimulus measures announced by Government should reassure an industry that is naturally anxious after bearing the full brunt of the last recession.

Newcastle Building Society