Iain Mansfield is looking to double the mutual’s commercial lending book to support the delivery of much needed new housing stock

Chief executive of Principality Building Society Iain Mansfield has outlined plans to double its commercial lending to support much-needed new housing development to more than £2bn, while saying that despite advances in its digital offering, he cannot foresee a time when the mutual does not have a high street branch presence.

Cardiff-born Mr Mansfield, who took up his role at the UK’s sixth biggest mutual last November, succeeding Julie-Ann Haines and having previously been chief financial officer, said its three-year naming rights extension with the WRU for the Principality Stadium will further deepen brand recognition of the mutual and its products.

Mr Mansfield, 50, a chartered accountant who spent 20 years in London across retail banking, consumer financial services and private equity, as well as a two-year stint working at steelmaker Corus before its acquisition by Tata, described Principality as a “Welsh heritage business” but with plans to grow its savings customers and commercial lending clients across the UK.

Principality has assets of £14.1bn and employs 1,100 people. On his role, Mr Mansfield, who is also chairman of business membership body CBI Wales, said: “It’s about providing the services that a modern mutual should to as many people as we possibly can. The amount of people saving in the UK is relatively low and the number of people with just £100 of savings is a frightening statistic. I feel my job of getting people to save to buy their own homes is probably as challenging as it has ever been.

“So, it is about being open-minded and giving people a reason to save for resilience. Whether that is for a washing machine, a car or a holiday, I don’t really mind, as long as we bring that funding together to ensure that we can create home ownership, or develop new homes, so people can buy them either through a social housing relationship that we have, a mortgage property, or through buy-to-let investments.”

While more than 90% of it lending comes from savings deposits, it does rely on wholesale money markets. Last year it finalised its first covered bond, with the inaugural £500m issuance at the start of this year on a five-year floating rate secured against residential mortgages.

Principality now sees covered bonds as central to its wholesale funding plans and expects to be in the market annually under a more than £4bn programme.

Mr Mansfield, who attended Corpus Christi Catholic High School and St David’s Sixth Form College in Cardiff and first joined the mutual in 2015 as finance director of its secured lending venture Nemo Personal Finance, said: “Our model is acquiring savings through our branch network and evolving and improving our digital franchise.

“We want to ensure that we have got flexibility in our wholesale markets with our securitisation programme and a covered bond programme which commenced at the beginning of this year. That gives us the ability to go into the market once and get a relatively cost-effective and big chunk of funds that mature five years out. What we’re not saying is that we have to go into wholesale markets to any greater extent.

“We were created to help people save and we would like that percentage (saving deposits to fund its mortgages and commercial lending) to be as high as we possibly can. As the business grows, there is real benefit in having some wholesale funding as it gives us access relatively quickly and effectively to a big chunk of five-year money.”

The mutual holds saving deposits with a value of around £11bn. Mr Mansfield said: “The vast majority of that links to a branch. Last year we opened 175,000 new accounts and two-thirds of that was through a digital route.

“We have half a million savings accounts, but new accounts are different to members, who will have multiple numbers of accounts. We have invested heavily in our website, so the route to be able to get access to our rates has increased, and our expectation is that we will have an app by the end of the year in what will be a big digital shift.”

Principality has 54 branches, although one in St David’s Shopping Centre in the centre of Cardiff is due to close, and a presence at 16 agencies across Wales and the English borders. That comes with significant fixed costs of maintaining its branch presence.

Has he, the management team and the board appraised a time when it might no longer require a high street presence due to a wider take-up of digital services?

Mr Mansfield said: “I think it is highly unlikely that we would be a digital-only business as we have a community and heritage in Wales. There is a broader piece here as well around alignment with what we are trying to do. Of course, more people over time will effectively save through digital routes, but what we don’t want to do is alienate people who want to come into a branch.”

He said the branch “human touch” of the mutual sector provides a point of difference to banks, where there has been a significant reduction in high street branches in recent years.

He added: “We have the largest branch network in the financial services sector in Wales. We are committed to our communities and I think our branch colleagues also want to bring in digital customers. Our mortgage business and savings franchise is right across the UK from a digital perspective, but longstanding members have historically opened their accounts through a branch.”

He does not like to distinguish between the mutual’s Cardiff city centre head office, Principality House, which houses around 900 hybrid working staff, and its branches and agencies with around 300 employees.

He explained: “We made some operational changes around 18 months ago and put some of the tasks of our head office into those branches. Our amazing branch colleagues have been really receptive to being able to do multiple things, which is to serve our customers who walk in, but also to do some of the work a traditional head office call centre would do. So, we are utilising our branches to do more.”

However, staff numbers remain under review. He said: “As an organisation where the world is changing as quickly as it is, we should be making sure that our model is appropriate and understanding what that looks like into the future.

“The strategy that we want to build for this organisation is being a highly relevant, customer-focused business fit for the future. We need to invest in our business and it is really important that we have the right mix of skills and level of investment.”

Commercial lending

Mr Mansfield is upbeat on the prospects for the mutual’s commercial lending, which is mainly centred around supporting housing development. He explained: “On commercial lending, we have a lent book of £900m and commitments of £1.1bn, where we have agreed contracts with people but they have not yet drawn down, so there is a big pipeline of opportunity.

“We would like to double the size of the business (commercial lending) to £2bn-plus. Why is this really important? Because it is bang on what we do.

“We lend around a third of the book, and a growing percentage, to housing associations, which aligns with our strategy and purpose. We provide finance to around 20 of the 30 housing associations in Wales and a handful in England.

“So that side is growing and we are helping housing associations develop new properties so people who are struggling with affordability can get on the housing ladder in some description.

“There is also lending for residential investment and material landlords where they have an estate which provides property into the rental market for those who don’t want to buy. A third, and again growing, is residential development. So how do we support those investors who want to grow and build homes from the ground up? “We have also worked really hard in the last two years to build relationships with councils across Wales and Welsh Government (the Plaid administration has a target of 20,000 new social homes by 2030). We are sitting here ready to work with Welsh Government, councils and whoever else to provide capital.”

In Cardiff, through a joint venture vehicle with Welsh Government, Tirion, Principality’s lending helped to derisk the Mill development, which has delivered around 800 new homes – half for the open market and the rest social housing and mixed tenure – around the former Wiggins Teape paper mill site in Ely. He sees potential for Principality to deploy more commercial lending for similar partnership approaches, which would also have the benefit of putting less strain on Welsh Government’s constrained budget to fund social housing with the option of it providing guarantees.

He said: “The reason that worked [the Mill], and why it is important to replicate, was getting the right group of stakeholders together for a site that would not have been able to be developed just with a commercial developer, as it was an industrial site that needed remediation. What we were able to do, by getting the right structure in place with Welsh Government, was to write initial loans to be able to do that work, which meant a developer could come in and could see a route to development.

“We would like to have more relationships with regional housing developers. That would give us the ability to work on larger projects and help the Welsh Government reach the 20,000 new homes target by the end of the decade.”

Future office requirement

The mutual looked at a number of locations for a possible smaller head office building. Last year it was close to signing a lease to occupy space at the 1 Callaghan Square office building, covering floors released by law firm Eversheds Sutherland after its decision to reduce its footprint in the building. However, that space has now been taken by British Gas.

There is currently a lack of grade A office space in the city. Any new speculative development, with high construction costs, would require a significant increase in the headline rent for the city and moving closer to the more than £50 per sq ft in Bristol. While no longer actively in themarket for a new head office, it remains a longer-term option for the mutual.

Mr Mansfield said: “Because this is such a great location, you have to be 100% sure it is the right place. We want just a few floors and getting people into one area and having staff working through processes seamlessly.

“My responsibility is that the balance sheet assets of this organisation are protected. So, we have been transparent with colleagues that the long-term strategy is to find an alternative home for this business, but we are not rushing into that.

“My other job is to ensure that we are looking after the assets, and one of the ways to look at this building [Principality House] is to understand the process so we can potentially get planning permission to put us into that position. If you have got that, then you have a potential business case.” Assuming it could find the right property, with a requirement of around 40,000sq ft, what redevelopment options could there be for Principality House?

Mr Mansfield said: “It has to be something that aligns 100% with the purpose of our business. So, if in the future we get the alchemy of finding a location and an option to do something, we would ensure that, subject to its commercial viability and protecting our members’ interests, there is a sustainability of purpose, so there would be a housing element.”

The mutual also owns a number of buildings around its head office at the Friary. The chief executive said that if Principality House is redeveloped, the mutual would not seek to be the developer, but a funder through its commercial lending arm.

Principality Stadium deal

In 2015, Principality entered into a 10-year naming rights deal with the WRU which renamed the Millennium Stadium the Principality Stadium. The value of the deal was not disclosed, but it is believed to have been around £12.5m with annual payments.

It was extended by a year due to the pandemic. The value of the extension, to 2030, has also not been disclosed, but provides some uplift on the 2015 deal, although it is pretty much static when accounting for inflation.

Asked if there could be a further extension – assuming there isn’t commercial interest from elsewhere – Mr Mansfield said: “It is way too early to say what the future looks like. The importance of the stadium for us is several-fold.

“Number one, our brand awareness has increased, with awareness in Wales, prompted and unprompted, continuing to be positive on the back of the stadium, which is key for us.

“We have a desire to grow our business, yes in Wales but outside too, so it is a shop window for our ambition. There are a million people a year who walk into or around it. For us, that is a massive opportunity to engage with existing members, but it also gives us visibility across the UK and beyond.”

On whether there is an element of confusion, as some might think it refers to an outdated and historic reference to Wales being a principality rather than a building society, he said: “We have a real ability to springboard this, and one of the focus areas through our strong relationship with the WRU, is to ensure that in all of our campaigns we get that connection between the Principality Stadium and Principality Building Society.”

On current trading he said: “From February to half year it was very challenging to price because of what has gone on in the Middle East. And that has meant the swap rates and the route through which we price our savings and mortgage business has been hugely volatile.

“Our teams have had to work very hard to continue to price practically and effectively through that period. Irrespective of that, we are not far off the plan that we expected and there is no reason to believe that we will not get to where we need to by the end of the year from a retail mortgage perspective.”