ROOF Blog

Britain’s oldest building society is to be taken over by the much larger Skipton Building Society. The Chesham, which was founded in 1845, said that it had been badly squeezed by economic and interest rate conditions and was loss-making at the operating level last year. The society boasts 20,000 members and three branches in the Buckinghamshire commuter towns of Chesham, Aylesbury and Little Chalfont. Skipton has promised to keep the three branches and an agency in Tring open for at least 12 months. There will be no compulsory redundancies among branch staff, but some head office employees will lose their jobs. The deal will require approval from both Chesham members and the Financial Services Authority.

Tens of thousands of borrowers face a shock jump in mortgage payments after Skipton Building Society confirmed plans to raise its standard variable rate from 3.5 per cent to 4.95 per cent. The move, to take effect from 1 March, will raise mortgage repayments by up to 40 per cent for some borrowers, adding almost £200 a month to repayments on a £150,000 interest-only loan. Skipton, Britain’s fifth-largest building society, with 100,000 borrowers, previously had guaranteed that its variable rate would not rise while Bank of England base rate stayed at 0.5 per cent, but it has cited a clause in its loans’ small print allowing it to ignore the promise in ‘exceptional circumstances’. Skipton has blamed its decision on ‘unprecedented’ competition in the savings market from National Savings & Investments (NS&I), the Treasury-backed savings provider, and state- controlled banks. Experts say that other building societies are likely to follow suit and raise interest rates for homeowners on an SVR, the ‘revert’ rate that borrowers switch to when a mortgage deal ends.

Abbey has announced a sharp increase in its share of the mortgage market in the past three months.

The group lifted pre-tax profits by more than 30 per cent to £1.16bn in the third quarter of 2009.

Although mortgage approvals and house prices have been recovering in recent months, they remain well off the highs of the housing boom that ended two years ago.

And think-tank Oxford Economics reports that there is a significant risk of renewed falls in house prices next year and in 2011.

Neil Blake, director of economic analysis, said that the rises in house prices since 2001 can only be explained by an explosion in the availability of credit rather than any fundamentals of supply and demand. Now that credit is hard to come by, house prices risk a ‘double dip’.

He added, ‘Our research suggests that had we not experienced the massive expansion in credit after 2001 there would have been barely any growth in house prices in real terms.

‘Credit conditions are key to the housing market, but even a strong recovery in credit will not be sufficient to prevent house prices dipping again next year.’