Half-year results announcement
The West Brom today announces its results for the six months to 30 September 2020.
• £248m of new mortgage lending (30 September 2019: £251m), with 48% of new mortgages to first-time buyers (30 September 2019: 56%)
• First lender to launch new mortgage product proposition specifically designed to support mortgage prisoners, who have previously been trapped in paying higher rates due to strict borrowing criteria
• Maintained our average rate for savers at 17%1 above the market average for the period, rising to 52% above by the period end
• Statutory profit before tax of £2.9m (30 September 2019: (restated): £5.5m) after setting aside additional provisions for credit losses in respect of the anticipated economic impact arising from the COVID-19 pandemic
• A strong capital position with the Common Equity Tier 1 (CET 1) capital ratio improving to 16.5% (31 March 2020: 15.9%)
• Improving Net Promoter Score®2 from +73 at March 2020 to +75, with customer satisfaction remaining strong at 96% (31 March 2020: 96%)
Jonathan Westhoff, Chief Executive, commented:
Set against the challenges of operating in full lockdown for half of the period, I’m pleased to report the Society has delivered a robust first half performance. Throughout this period, we have been focusing on prioritising the wellbeing of our members, colleagues and communities, remaining operationally and financially resilient and ensuring our products, services and premises are safe and accessible.
Prioritising the wellbeing of our members, colleagues and communities
We responded to the first lockdown back in March by adapting our operating model to ensure we could maintain our high service standards. We did not place any employees on the furlough scheme, and ensured all employees were paid their full salary irrespective of whether they are required to work their full contractual hours. We supported homeworking for a high number of employees, and reduced the number of people working in our head office and branches to enable social distancing.
A priority was to support our most financially vulnerable borrowers, and help them access a payment deferral and other specific support measures if required. We set up a dedicated team to support these customers, and as of 30 September 2020, 14% of all our residential mortgages had taken a payment deferral. For those that had reached the end of their initial payment deferral, 84% had either restarted their monthly payments or redeemed their mortgage, with 16% requiring an extension, representing 2% of total residential mortgages outstanding.
Our activity in the mortgage market, after a relatively short hiatus at the start of the first lockdown, recovered strongly. The knock on effects of a pause in the housing market mean that gross lending for the six months to September does not accurately reflect the true strength of our performance; compared with the same period last year, our application volumes were up 39% to £563m.
Although we took the responsible approach to limiting the amount of high loan to value lending, this did have an impact on the volume of first-time buyer activity. This segment of the market, however, is still at the heart of our Purpose and we were able to support a further 699 first-time buyers to become homeowners in the six months to 30 September 2020.
With Bank of England Base Rate at an all-time low of 0.10%, and the prospect of the rate potentially turning negative, savers have been hit hard by the pandemic with savers’ rates at extremely low levels. Despite this, throughout the first six months of the year, the Society has continued to help savers by paying average rates some 17%1 above the market average; this had increased to 52% by 30 September. In monetary terms, this means the Society has paid an additional annualised £2.6m in interest and equivalent to £5.7m using the period end rates. While this is lower than previous years, this is reflective of our duty to balance the needs of savers and borrowers.
An area that has been hit hard by the pandemic is the third sector, with donations and fundraising levels falling due to the lockdown restrictions. As a mutual, supporting the communities in which we operate is a core part of our ethos, and we were able to channel our fundraising efforts to helping groups most in need as a result of the pandemic. This includes donations to local food banks, care packages to new mothers at Walsall Manor Hospital, and colleagues volunteering to provide hot meals to the homeless. We also raised £30,000 to support the Midlands Air Ambulance to support the vital, lifesaving work they do across the region.
In the face of all the challenges the pandemic has bought, I am proud to say that our colleagues have maintained their commitment to outstanding customer service. The Society’s Net Promoter Score®2, which measures how likely our members are to recommend us, has increased to 75+ (31 March 2020: +73), exceeding the average across the financial services sector +50. As well as this, our customer satisfaction rating maintained at 96% and is a testament to the hard work and flexibility displayed by all colleagues during this crisis.
Remaining operationally and financially resilient
Of course the economic impact of the actions taken to contain the spread of COVID-19 has impacted on our reported profits, which reduced to £2.9m (30 September (restated): £5.5m). However, pre-tax profit before the impact of total impairment provisions increased by 19.3% to £10.5m year on year and we preserved our capital strength, with the CET1 ratio increasing to 16.5% (31 March 2020: 15.9%).
At 30 September, Group arrears for the core residential book stood at 0.42% (31 March 2020: 0.34%) which continues to compare favourably against the UK Finance average of 0.82%3. As employment markets start to reflect the impact of the actions employed to contain the spread of COVID-19, there is a likelihood that these levels will increase.
Ensuring our products, services and premises are safe and accessible
An important group to benefit from an exclusive product was mortgage prisoners. These are borrowers trapped paying higher interest rates, following the financial crisis in 2008, due to being unable to remortgage to cheaper deals as they didn’t meet the affordability criteria introduced as a consequence of the lessons learned in that crisis. Although this was only the start and much more work needs to be done to support mortgage prisoners, we’re proud to have been the first lender to implement the FCA’s new modified affordability approach, and launch a mortgage product proposition specifically for these borrowers. We also launched an exclusive product to NHS employees with a higher loan to value, to help these key workers when other products in the market were closed to them.
As we move into the second half of the year, we are adapting our products regularly with the ever changing market conditions, and we will seek to reintroduce more first-time buyer products once we are comfortable the risks to them and the Society are more balanced, especially as we are yet to see the full impact of the lockdown measures in respect to the housing market and employment.
I am extremely proud of the efforts of all my colleagues, who have remained resolute in their determination to ensuring the Society could continue to deliver its Purpose. When considering the progress the Society has made over the last decade to repair its balance sheet and deliver a strong capital position, this gives us the confidence that we will certainly weather the storm financially and, most importantly, continue to support both our current and future members. For the second half of the year, the outlook remains uncertain as we grapple with the ‘second wave’ of the pandemic, and second lockdown, despite the most recent optimism of a vaccine potentially improving the longer term outlook. That is why we will adapt and continue deliver the best service for both our saving and borrowing members and, crucially, be there for those who find themselves in financial difficulty as a result of this crisis.
1 Average market rates sourced from Bank of England Bankstats table A6.1
2 Net Promoter Score and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.
3 Average market rates sourced from UK Finance at 30 September 2020