Standard Life's Vote Against Demutualization Creates Uncertainty for Bradford & Bingley

Standard Life's demonstration that pro-mutual voters can thwart demutualization plans has cast a shadow over Bradford & Bingley's planned conversion to a bank. With windfalls estimated at a paltry £500-£815, pro-mutuality campaigners argue that the prospective benefit for borrowers will be short-lived, as increased mortgage rates will wipe out the windfall after just a few years. The borrowers' vote will be crucial in determining the fate of B&B's conversion, which requires a majority of borrowers to approve.

Key Takeaways:

• The average windfall for Bradford & Bingley's 2.5 million savers and borrowers is estimated at £500-£815, significantly lower than the £1,000-£1,500 initially bandied about.
• Pro-mutuality campaigners argue that the prospective windfall is so meager that B&B's 350,000 mortgage holders will be worse off after two or three years, as increased mortgage rates will exceed the windfall benefit.
• The borrowers' vote will be decisive in determining B&B's conversion, requiring a majority of borrowers to approve, while 75% of savers' votes in favor and at least half of the savers must participate.
• The conversion cannot go ahead unless it receives a majority of borrowers' votes in favor, with votes due by July 12 and the result to be announced on July 17.
• Even if B&B wins 100% support from savers, the conversion will fail if 51% of the borrowers voting vote against, highlighting the significance of the borrowers' vote.
• An all-party group of MPs led by Andrew Love is campaigning to keep B&B mutual, citing the significant decrease in windfalls and the potential for mortgage rates to outweigh the windfall benefit.

Statistics:

• Estimated average windfall for Bradford & Bingley's 2.5 million savers and borrowers: £500-£815
• Initial windfall estimates: £1,000-£1,500
• Average mortgage length: 5-7 years
• Average mortgage size: £50,000 (£100,000 mentioned as an example in the article)
• Current mortgage rate for Halifax's variable rate: 7.74%
• Current mortgage rate for Nationwide Building Society's variable rate: 7.29%
• Estimated annual saving on a £60,000 mortgage: £204
• Estimated annual saving on a £100,000 mortgage: £336

Sources:

• Byline: Patrick Collinson "Bradford & Bingley's planned conversion to a bank is under threat after Standard Life members showed this week that pro-mutual voters can scupper the best-laid plans of carpetbaggers." The Times (no specific date mentioned)