WALESTOP3002008 11
WALESTOP300
Building SkillS in WaleS
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So he doesn't share the apocalyptic visions
of some commentators?
"I'm not that pessimistic because this is
partly all about representation. Take some of
the statistics people have presented
recently on negative equity, for example.
"People have started to forecast that we'll
see 20% of houses with negative equity.
That may be a scary statistic but if you turn it
on its flipside it means 80% of people still
have equity in their houses.
"I'm not trying to minimise the bad news
because it's clearly going to be a very hard
time for a lot of people. We've got a bigger
debt problem than we've had in some
earlier recessions, but there are still a lot of
people in employment.
"So yes, there are clearly some worrying
signs in the economy around
unemployment, debt management and
falling house prices, but falling house prices
are actually other people's gain because
they were overpriced. We all know the
stories about people struggling to get onto
the housing market. It's going to become
affordable again for first-time buyers to get
into the market. Is that a bad thing?"
"I've been in this business for more than 30
years and when I started to lend to people
you would not get a loan unless you'd been
saving with somebody for two years and
had a 10% deposit. If we're returning to
those days, the question we have to ask
again is, what's bad about that?
"While raising a 10% deposit may be
difficult now, actually it's about not seeing
property as an investment, as people have
done in the recent past, but as a home."
Most people would agree that bringing
house prices down to a more affordable
level would be a good thing, but
encouraging first-time buyers to take on
sensible mortgages still depends on there
being cash in the system to allow people to
lend that money. It also raises the question
of whether lenders should be passing on
interest rate cuts to borrowers.
Mr Yorston said: "Nearly 90% of our
lending to customers is funded by our
savers. As everybody's returning to a
dependency on the savings market to get
money in to lend, reducing their
dependency on the interbank lending and
other wholesale market lending, there's very
strong competition for savers.
"We have 10 savers for every one borrower.
We want to pass on what we can of the rate
reduction, we want to help borrowers
through difficult times, but we've got savers
that we've got to be able to retain and
attract to enable us to borrow. If we get
those two sides of our book significantly out
of step we'll stop attracting the savers, and
we won't be able to lend.
"The Government will continue to play an
active interest in what's happening to
interest rates and whether they're being
passed on, but it's difficult to see a picture
where you'll see all of those cuts being
passed on."
This answer suggests one reason why Mr
Yorston may be feeling so confident. It's
because the Principality, like some of the
other smaller Welsh building societies, is less
exposed than some of the bigger UK
lenders because of the way it conducts its
business.
"Our model is much more aligned to the
traditional model; we don't have a high
dependency on wholesale borrowing from
banks and other institutions to allow us to
lend. In fact, 88% of our lending is provided
by retail savings.
"We've got a very good team who
understand the institutions we invest in very
well, so of the remaining 12% we know
exactly where that money is invested and
where we borrow money from as well."
He added: "We have a very prudent
lending policy too. We have not entered
wholesale buy-to-let markets, we've very
strict controls on the proportion of our
lending market that we will have in any of
these places. We didn't enter 125%
mortgages, for example.
"We also have a good geographical spread
in that we don't lend too much in single
geographic areas. If the Welsh economy
suffered more than any other, then if we
only lent in Wales we'd suffer more as a
result, so we lend across the rest of the UK.
"Finally, we're very clear about affordability
being a clear criterion. We're not lending
against the asset, we're lending on the basis
of whether people can afford this loan.
When you see multiples of five or six times
salary you've got to question whether that's
the right model to be operating under."
So does this confidence in the prudence of
the model mean the Principality is able to
exploit commercial opportunities thrown
up by the crisis?
"We've carried on lending throughout
2008, which for Welsh borrowers has been
good news. People have seen us a safe
haven in the sense of a traditional model
without some of the exposures, so this year
we've attracted record retail savings and
that's allowed us to be able to carry on our
business model," he said. xz

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