Podcast Summary
Andy Golding gives his forecast for the summer economically and at Saffron
It's been great weather lately, but we're all here at work, quite grateful for the air conditioning. But what about the economic forecast, Andy?
Mixed, I'd say.
How so?
Recent data has given us a varied outlook for the economic future. Firstly, Nationwide have reported another rise in house prices, by 0.9%, in June. Also, though mortgage lending is still down on this time last year, it is beginning to stabilise.
House prices and mortgage approvals are generally the first factor to change direction both at the start of a recession and in recovery period.
However, there are also reports that the UK economy has contracted sharply - by 2.4% - in the first quarter of 2009. Lloyds Group have announced further job cuts and I'm pretty sure we haven't heard the end of rising unemployment. Recovery may not be v shaped or u shaped - it may be more w shaped, so recent 'good' news may later give way to further setbacks.
One thing to comment on is that consumers are now coming to terms with being in a recession. It's no longer a case of shock and fear. Many people now understand what the recession will mean for them and are developing a strategy to cope, whether that means changing spending habits or taking more time to plan for the future.
So we've battened down the hatches and are prepared to tough it out?
Essentially, yes. A recent survey by Arena BLM reported that the majority of people feel that the UK economy will stay more or less the same over the next 3 months. Back in February, a large majority felt that it would get worse. So fear does seem to be abating - but it's not until confidence returns that the economy can truly recover.
There was recent news in the papers that Building Societies are struggling to grow savings balances. How has this problem come about?
For a start, there's a trend towards paying off debts rather than saving. Some people are dipping in to their savings to get them through, and the current low rate environment makes saving less attractive to many.
All institutions are finding that their access to wholesale funding is restricted, so competition for deposits is fierce. However, many institutions are offering quite frankly ludicrous rates on some products. Many of the too good to be true rates have quite a lot of strings attached in the small print, but we have to be mindful of the fact that base rate is just 0.5%, so if an institution is paying 10 times that you have to question why.
What can building societies do to gain their fair share of new savings money?
Well for me offering madly unsustainable rates of interest is not the answer. Societies have in my view strived to be consistent with savers and their interest rates. In terms of action, the Building Societies Association agree that the fact that we are competing with state owned banks who are effectively using tax payers money to support themselves is distorting the market and are looking to the government to level the playing field.
It seems that some people are making a difficult call between rate and where they are comfortable putting their money and I know that this was something discussed at Saffron's members' conference recently. Tell us a little about the conference.
The conference is a day for our members to meet with the society's exec and discuss their experiences of being a Saffron customer. 2009 was our 3rd conference. We held it at the Wellcome Trust in Hinxton and over 40 of our members attended on the day. We set them a bit of homework - with so much about the financial world in the news, we asked each delegate to keep a scrapbook of what they'd been reading over the weeks leading up to the event.
What sort of things came up in their clippings?
The findings were really interesting. Not only did they generate a lot of debate about loyalty vs. savings rates, but the wider ethical implications of investing in certain companies were of concern to people in the room. We're definitely in an age of increasing social responsibility; and members commented positively having seen stories of Saffron's community projects in the local papers. Ultimately though, there are a lot of mixed messages about the economy and financial services, and though some of them concerned our members, few felt compelled to act as a result of what they'd read.
While things still seem quite unstable, I suppose many of them are prepared to sit tight until things start to settle down - if they ever settle down!
I think that's right. The financial landscape will change dramatically as a result of the last couple of years. Banking regulation is undergoing reform in an attempt to prevent the past from repeating itself. Banks may have to change how they are structured. 110% mortgages are a thing of the past. Credit cards are facing crackdowns on luring people in to higher borrowing. When we come out of the other side of this recession, I think that the world of financial services will be rather different.
So what does that mean for building societies?
We discussed the future of building societies at the members' conference. Mutuals were originally formed in the 19th century to help the community with problems such as providing food, insurance and housing. In building society terms those in the community with money funded house building and buying for those who didn't. Financial services are more sophisticated now and probably too complicated, but the core principle of meeting the financial needs of a community is still relevant today.
How we will do this remains to be seen. Communities are more fluid than 100 years ago, and their needs are obviously different, but it's my belief that the fundamental principles of support, service and sharing resources are still as important as ever.
So, how are Saffron helping people out at the moment? Is there any product news this week?
Well, our savings tool, Saffron Moneytree, has hit the best buy tables - the 2.30% instant access Goal Saver internet account can be applied for through Saffron Moneytree. The account is designed to help people who wouldn't normally save. By linking savings directly to dreams, need or goals, the service is designed to increase the motivation to save. The trouble is savings accounts are boring, but cars, weddings, children's education are all exciting. Savings should be about these things and others, but about financial products.
Our new Moneytree site helps by getting visually lining up those needs and goals with the actual habit of saving for the future. You can find it through our website and it's full of tools to help you work out where your money's going each month.
What made me laugh was a phone call from a fact finder at one of the price comparison sites - who will remain nameless - who said 'so, you're encouraging people to put in details of what they earn, how they spend it, where they save - very sneaky. You'll have loads of information on customers!' I laughed because we hadn't even considered capturing that information. We wanted people to be able to track and review their expenditure - and they're the only people who can see what they put in. We just wanted to provide a structure to help make sense of it all.
Obviously a rather outdated idea - just helping people because you can! Is that all the product news?
No - as it happens we've three more sets of people that we're helping out with our products.
Firstly, our older customers will see a rate boost on their e-saver 55 plus accounts - up half a percent to 2.30%. It's for new and existing customers, and isn't a short-term gimmick.
Also, we've our two business accounts, aimed at giving a bit of support to local businesses and firms. Our new Business e-saver is for any limited company. It's online with instant access, and offers a pretty good rate of 1.50% - which looks very good to those companies with funds earning 0.10% on rock-bottom rates. We've also given a half-percent boost to our Solicitor's Reserve Account, bringing it to 1.50% as well. If you're a local business, keep an eye on Saffron's podcasts because we're planning a recording with Saffron's Business Manager to talk through the accounts in further detail.
Of course, you can still contact us to find out more information about Saffron's products. To join our product mailing list, just drop a line to marketing@saffronbs.co.uk and they'll add you in.
In the last podcast, we talked about the new ISA rules and how Saffron will be adapting to allow top-ups for the over 50s from 6th October this year. There have been some developments on the rules, haven't there?
That's right. The Treasury, Financial Services Authority and HMRC have recently issued guidance to ISA providers about how to implement the changes. They've decided that providers don't have to offer a top up to over 50's from 6th October. Whether to offer the top up is going to be a 'commercial decision, not a regulatory obligation'.
I was really surprised. The government's Budget in April had the drive to help older savers by letting them enjoy the new ISA limit six months before everyone else, but now we're being told that it's up to us whether we pass on the benefit this year.
So are Saffron still going ahead with making changes for the over 50's from October?
Of course. Regardless of whether we have to or not, we always wanted to pass this benefit on to our older savers. We feel very strongly that allowing the top-ups is the right thing to do. The sad thing is that, now that the top-up is optional, not all ISA providers will feel the same way and some older savers might miss out on the chance to grow their tax free savings.
Also, look at it from the customer's point of view. If I was expecting to top up my ISA and then was told that I'd have to wait until April like everyone else, I'd probably start wondering whether that provider was the sort that would act in my best interests in other situations.
So, everything's still changing but Saffron is keeping up. It's been a busy month! Will the summer be a bit of a holiday for the society?
Well, as much as I'd love to let everyone enjoy the sunshine... there's still a lot going on!
One of the features of the summer will be the 160th birthday parties which we're holding in our branches over the school holidays. I'd like to invite everyone who can to come along and join us for a slice of cake.
We kick off on Tuesday 28th July in the Saffron Walden branch. Other dates are Friday 7th August in Halstead, Thursday 13th August in Bishop's Stortford and Friday 14th in Haverhill.
If you wear your birthday badge in the branch, we'll donate 25p to a local charity, and there will be music, face painting, candyfloss and a prize draw to win £160. It'll be fun and for a good cause, so please do drop in if you can. We wanted to show our local communities that we really do have a lot to celebrate.
Let's hope the weather holds out! That's all for this podcast - and we're now taking a bit of a podcast break until September. Andy, anything nice planned for the summer while the kids are off?
I've got a couple of weeks in July and August - looking forward to some sun and sailing and not worrying too much about work!
Lovely. We'll talk to you again in the autumn. Thanks Andy.
