With record profits and healthy reserves, The Cambridge Building Society’s strong financial performance in 2023 would be an understandable place to launch into a review of the business.
But CEO Peter Burrows has something else on his mind.
“It’s been a fantastic year – we are really pleased,” he begins. “It’s been really good in terms of the scores we’ve received for customer service.
“We have a third party organisation that does independent polling of our customers twice a year and the average on the basket of measures is the highest it’s been for years. We are back higher than where we were at the start of the pandemic.”
So what does he attribute that to?
“I think it’s investing in our digital offering but not losing sight of the fact that we are a business that’s powered by people,” he replies.
“We take great care to make sure we are investing in people and training them to give great customer service, whether that’s in one of our stores around the region or in our call centre.
“Hopefully, it’s the fact that we always start with customer service – we are a mutual. We like to be a customer-centric business. Customer service is our number one KPI.”
The Cambridge has boosted its spending on learning and development and participates in the biennial Best Employers survey, for which it earned higher scores in 2023 than in 2021, which were in turn higher than 2019.
The last couple of years, of course, have been characterised by a steep rise in the Bank of England base rate – from 0.1 per cent in December 2021 to 5.25 per cent in August 2023, where it remains.
Amid this environment – welcome for savers but very challenging for many of those with or seeking a mortgage – The Cambridge has been careful to strike a balance.
“We’ve grown our mortgage book by six per cent and our savings book by eight per cent. Those two aspects of the business are growing,” says Peter.
“We’ve been able to use some of that strength to make sure we are offering fair rates to our customers.
“There were five separate rises in the Bank of England base rate over 2023. It rose by 1.75 per cent over that time but the average savings rate we paid to our customers rose by 1.86 per cent, so we were able to give just a little bit more than the bank rate.
“Likewise on mortgage rates: some customers have the benefit of a fixed rate deal, which doesn’t change, but the average increase customers paid on their mortgage increased by 1.11 per cent, so we’ve widened that gap.”
Peter stresses that the building society has not sought to cash in on the rate rises.
“We are not profiteering at the expense of customers – quite the opposite,” he says. “The fact that we are a slick, stable and financially robust organisation means we can push some of that back to customers through the rates we are offering.”
Despite rising interest rates pushing up the cost of mortgages, The Cambridge found the housing market locally held up, helping it to grow its mortgage book beyond £1.5bn for the first time in its history.
“In terms of people taking out new mortgages, the market was reasonably buoyant. In Cambridge, there wasn’t a significant drop in property prices. The market kept going quite well and we were able to continue supporting it,” says Peter.
“The first-time buyer market has held up pretty well – about one in three of our new loans last year was to first-time buyers, which I probably wouldn’t have predicted a year ago.
“Partly that’s because we’ve made sure we’ve got products suitable for first-time buyers and also we are very happy to support shared ownership mortgages, which is about eight to 10 per cent of our business.”
Reflecting the belief that the base rate is likely to be cut later this year, The Cambridge has seen customer preference shift away from fixed rate mortgages to variable.
“Over the last four or five years, the vast majority have taken out fixed rate mortgages so they haven’t experienced a steady incline.
“When they’ve gone on to a new mortgage product, what they’ve seen is a significant jump and that’s been a real shock to some people,” says Peter.
Earlier in March, the Bank of England announced that UK mortgage arrears had hit a seven-year high – perhaps not surprisingly given that the base rate is at a 16-year high, a result of the high inflation environment that has fuelled the wider cost of living crisis. But The Cambridge has not witnessed a rise in arrears among its customers.
“We put that down to the fact that unlike some of the major banks we still employ a team of underwriters. Every single mortgage application that comes to us is looked at properly.
“Sometimes, ironically, that means we’re prepared to lend to people who have been declined by other organisations. But clearly we’re a lower risk organisation as evidenced by our lower arrears. The fact that we take the time and treat people as individuals at the point of application means that we end up with a higher quality loan book, which benefits everybody, because it means for the thankfully small number of people who do get into difficulties we’ve got the ability to treat them as individuals because we’re not dealing with a broader problem.”
As ever, the advice to those who do get into difficulties is to get in touch early, so that help can be offered.
“We have a team of people whose sole purpose is to work with those who are experiencing payment difficulties and help them,” says Peter.
“The flip side of the pain that a lot of mortgage customers are experiencing is a lot better news for savings customers. We take our responsibility as people in the middle very seriously. As rates were rising, we were always thinking about how we share that between our mortgage customers and our savings customers.
“We try to give a little bit more to our savings customers and shield our mortgage customers a little bit, but there is only so much you can do in a rising rate environment.
“The average one-year fixed rate according to Moneyfacts is 4.6 per cent, which would have been unheard of four of five years ago. We’ve got a 100-day notice product which we’ve priced at 4.7 per cent – we always like, where we can, to be slightly better than the market average.”
Rising rates, however, do lead to improved profit – and The Cambridge recorded a record profit before tax last year of £20.5million.
“Last year’s profit was excellent – the highest the society has ever recorded. There are some one-offs fuelling that, but if you strip those out the underlying performance of the society is very good,” says Peter.
Richard Brockbank, the society’s chief financial officer, explains: “One of the things we see when rates are rising and, more importantly, when expectations of where rates are going to go are rising, are big accounting gains on some of the financial instruments we use to manage the risk in our business.
“It’s something that happens aside from the mortgages and savings products, but it’s real profit nonetheless and feeds this capital.
“This won’t last forever – it will start to disappear as the rate cycle changes. We don’t speculate, but we have to take out instruments called interest rate swaps to help manage the risk in our business when we are funded mainly by variable rate savings, but we lend mainly, historically, on fixed rate mortgages, so we take these out to make sure we aren’t affected too much when savings go up and mortgages can’t go up. The balance of those tend to benefit us when rates go up, but the opposite will be true when rates go down.”
Peter adds: “We expect profit not to be as high next year, but that’s nothing to do with the underlying business, which is still strong.
“I’d expect 2024 to revert to a more steady state level of circa £10m per annum, which is still very good if you chart back to 2019, so it shows the improvements we’ve made in the underlying business.”
The annual results show capital reserves of £127m and liquidity assets of £331m – both well in excess of its regulator requirements. Richard explains the benefits of the record reserves go beyond financial security.
“It’s also the capital we have to invest – that’s our cushion and it’s one of the things that enables us to make the investments in the service and the branch network and our community programmes,” he says. “It’s the fuel for our business. The more of that we have, the faster we can go.
“Like any other business, we have to generate a profit, but the difference is what we do with that profit.”
Next year’s anticipated £10m profit will “sustain the investment that is really important to us and our members,” he notes.
Helping the community
So how is The Cambridge looking to invest and make a difference to its customers and the wider community?
“We are currently looking at the next step in terms of investing in our branch and store portfolio,” Peter reveals. “We want to make sure we are utilising all the space and property we have, not just to make sure that we’ve got great premises to run a building society from, but also to see if we can actually use some of that space to bigger community benefit.”
Later this year, Peter hopes to announce significant investment in the stores and land associated with them, including building some community homes.
“We would intend to put these homes into our Rent to Home scheme, which we launched four or five years ago. We’ve built the intellectual capital around it and we know what we’re doing now and we can take it on to a much bigger level,” he says.
Rent to Home is The Cambridge’s unique community scheme that is currently offered on five properties it owns. Aspiring first-time buyers who apply and are lucky enough to be drawn out of a ballot box are able to rent one of these properties and then get up to 70 per cent of their payments back after a maximum of three years to put towards a deposit for their first home.
William Vandepeer has now moved out of The Cambridge’s Cottenham property to purchase his first home in Soham after getting £18,195 of his rent back for the deposit when he took out a mortgage with the building society.
In August, new tenants were welcomed into properties in Northstowe and Longstowe, who will get up to £32,760 and £36,540 back when they come to put down a deposit. A property in Ely was the latest added to the scheme, and the ballot for that one has just been drawn after an unsurprisingly high number of applications.
“This was a groundbreaking scheme and we’ve been through it all, ironing out how it would work and persuading people it is for real,” says Peter. “People sometimes say ‘But I can’t see the catch’. And we say, there isn’t a catch. We’re a business with a social purpose and we’re trying to do some good.
“In six months’ time, we would hope to announce that we could grow the Rent to Home scheme from five to 25 properties – that’s our stretch target. We’ll get there somehow, even if we have to buy a few to top up the portfolio, because I think that would be an amazing legacy and gift for an organisation with a social purpose.
“From a business that usually deals in financial products and nothing tangible to hold on to, it’s exciting times for us because we will be developing in the local community.”
These new homes – subject to planning permission – would be built on sites the society owns around its branches, including potentially on a patch of land it owns in Sawston.
“We want to ensure they are really high quality and they will have high levels of energy efficiency,” notes Richard.
It’s a pioneering scheme – but Peter and Richard say they would love others to copy it.
“If somebody would contact us to say they were interested, that would be fantastic,” says Peter. “We’ll share all of our learning. The intellectual capital comes for free. We’ll even put some of our capital behind it.
And he reveals that the society has even suggested to local authorities that they could think about imposing a condition on new developments that some homes could be required to join in the Rent to Home scheme, even if for a limited period.
“If 100 homes were being built, and three had to be put into Rent to Home for five years, that would be a fantastic thing for the community, and we could administer that for free,” says Peter.
“Rent to Home obviously targets people in jobs. But at the other end of the spectrum we do a lot of work with charities that help people who are really down on their luck and need short-term shelter. One of the grants that our community foundation made last year was to The Angels Foundation – helping women fleeing domestic violence and finding them accommodation. There are some great charities doing fabulous work and we don’t have their expertise so we fund it through community grants.”
In 2023, the society donated £106,157 to charities via its Community Fund, which is administered by Cambridgeshire Community Foundation. Grants included £10,000 to The Angels Foundation, £9,978 to Concrete Rose to extend its ‘room to spare’ scheme, £10,000 to New Meaning Foundation to help people who have been homeless develop skills and £9,492 to Baca Charity, which supports those seeking refuge in the UK, many of them victims of human trafficking.
Its team donated 739 volunteering hours – including at the ever-popular Bridge the Gap walk in aid of Arthur Rank Hospice Charity and Romsey Mill – and it supported homeless charity Jimmy’s Cambridge as its charity of the year, raising around £11,000.
And its £100,000 Cost of Living Crisis Fund, launched in 2023, supported children, families and vulnerable people through charities such as Cambridge Aid and Cambridge City Foodbank, with 4,000 people benefitting.
“We are trying to help the community with housing challenges right across the spectrum,” says Peter.
A retrofit scheme for a 1930s house
The Cambridge Building Society will embark on an intriguing new sustainability project in 2024, which you will be able to follow with the Cambridge Independent.
“We have bought a property near Cambridge United’s ground, which is a typical Cambridge 1930s property and it has barely been touched since it was built,” explains CEO Peter Burrows. “We all want to do our bit for the environment but if we’re honest a lot of us aren’t exactly sure what the best thing to do is. So we’ll invest in it to improve its climate performance, but do so in keeping with the local environment and in a cost-effective, sensible way, that we can all see has payback, and we’ll share the story.
“We’ll create a record as we go through and hopefully everybody could learn from it.
“We’ll share the options we considered, the cost of doing it and the best measurements we can. We’ll start with some infrared imagery to show how it leaks heat now.
“We hope it will capture people’s imagination. We’ll be open if we make mistakes – hopefully there will be more ups than downs!”
