CEO Blog

Not long after I had become Chief Executive at Ipswich Building Society the 2008 banking crisis hit, creating what appeared to be a unique set of circumstances as each day brought new and unsettling news for the sector.

In 2011, this has spread and the Eurozone crisis rumbles on with the French banks now under severe pressure.  The current news is that the IMF is proposing a radical approach to resolving the crisis, including writing down 50% of Greece’s Government debt. This ever changing picture means that this will be out of date in less than 24 hours, but to put it simply, sooner or later the matter must be resolved.

Closer to home the UK has seen a sharp increase in unemployment, with 2.5 million people now out of work. Youth unemployment is one of the worst affected areas, as a significant number of young people are now not in education, training or employment. With three new apprentices working for the Society I can say with confidence that there is a wealth of talented, intelligent and hard working young people who are keen to gain employment, and the lack of opportunity for them is frustrating.

Despite the poor economic conditions and bleak outlook for the younger generation, they remain resolutely optimistic. A BSA Survey recently found that 8 out 10 young people still had the goal of owning their own home before the age of 30. The Society seeks to meet this need by offering Shared Ownership Mortgages, and mortgages at higher loan to value. Individual underwriting and experienced mortgage advisers ensure that applicants are well informed, and borrow at an appropriate level for their circumstances. Although the global economic outlook may not be rosy, it is important to look to the future, and consider the impact on future generations.

It was on 5 March 2009 that the Bank of England reduced its Base Rate to an all time low of 0.5%. At that time there were many varying predictions on how long this would last, but I'm not sure that many people would have anticipated that more than two years on rates would remain at this low level.

Of course inflation remains well above the Bank's target of 2.0%, and each month Mervyn King is required to put pen to paper and explain just why this is happening. There have been a variety of reasons, or excuses, depending on your view. Many of these have been labelled "one offs" such as the increase in VAT in January. But the fact remains it is, for whatever reason, well above target. The concern is that if rates rise in order to counteract the rate of inflation, many people will suffer as mortgage rates will increase. The borrower has to an extent been lured into a false sense of security whilst rates have stagnated, and many homeowners in their twenties and thirties will have no recollection of soaring interest rates or how to accommodate the increasing monthly mortgage payments into their budget.

The solution to bringing down the rate of inflation is the $64,000 question, but if I were a betting man I would not anticipate a rate increase until Autumn at the earliest.