Woolwich incentives boost mortgage business

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Woolwich Building Society snatched almost 8 per cent of net new mortgage business last year, reflecting its strategy to buy market share by spending more than pounds 100m on incentives such as cash-backs and discounted rates, writes Jill Treanor.

Overall, the society's net lending increased by 50 per cent to pounds 1.4bn, which represented 7.6 per cent of the market - higher than its traditional 6 per cent market share. Its gross lending was pounds 3.9bn.

Woolwich yesterday reported record profits, excluding the costs of its planned flotation, of pounds 392m, a rise of 18 per cent on 1995. For the first time in 10 years its estate agency business made a profit, but this was mostly as a result of the profit on the sale of Chestertons Residential.

However, the society's profits would have been pounds 83m lower if Woolwich had written off the special mortgage offers in 1996 instead of amortising the costs over an average four-year period.

The society will float on the stock market later this year and wants to increase its presence in the north of England by merging with a building society in the area.

But John Stewart, group chief executive, indicated that such mergers might be difficult if proposed legislation goes through Parliament. This would mean Woolwich would lose a five-year protection against takeovers if it merged with another financial institution after it had converted to a bank.

Rob Thomas, building society analyst at UBS, said Woolwich's mortgage share would have been helped by its bias to the South-east of England. He also noted that its gross lending figure might have been inflated by borrowers staying to ensure they received their free shares.