In the 21st century, the world of finance has become more diverse than ever before. The increase in services available to consumers has been matched by the growing importance of technology in our daily lives, which means that we can interact directly with our bank online or via an app on our smart phone. Connected banking has become ubiquitous in the modern day, and the transformation of banking has been characterised by the changing face of high street banks; from the traditional image of a bank which has persisted for hundreds of years, banks are now beginning to shift into a more modern method of providing financial services. This development has been largely driven by the willingness of major banks to encourage innovation and provide ever more convenient services for their customers, and as a result banking has largely become something we conduct on our laptops, phones and tablets, and not something we visit our local branch for.
The general move towards a digital banking solution has made life much more convenient for consumers, but it has also created a loss of identity; when all we see of a bank is its website or app, it’s tough to tell one from another. However, many banks have their own individual identity, and the Trustee Savings Bank, from which our modern-day TSB has evolved, has a strongly established character all of its own. Nowadays, TSB is one of the foremost lenders and financiers of mortgages in the UK, following its re-founding in 2009.
What we know today as TSB is in fact derived from a general term for a completely different style of bank to high street banking; “trustee savings banks” were founded in the early 1800s as a means to enable poor parishioners, craftsmen and the middle classes to save reliably. First set up in 1810 by the Reverend Henry Duncan of Ruthwell, the trustee savings bank was founded to provide a safe place for the poorest members of society to invest their money; at this time, banks only catered to those with substantial savings, and those who had little to put away were unable to open a savings account. This meant that citizens with modest means were unable to safely store their earnings anywhere, making it hard to accrue any savings to buy property or improve their circumstances.
With the introduction of the trustee savings bank, a new kind of banking was born. This was not without its teething troubles, as a bank with the sole objective of providing security to its depositors was unheard of; new rules and regulations had to be created in order to ensure that any deposit could be reliably withdrawn at any time. This meant that the banks themselves also had to find ways of investing which were rock-solid and guaranteed to provide a return; initially, they would invest most of their assets into Government bonds or deposited with the Bank of England. The managers who made the decisions as to where customer’s deposits were invested were the bank’s “trustees”, hence the organisations name.
Because of the nature of trustee savings banks at this time, they weren’t permitted to offer loans to consumers – their function was purely to provide a safe deposit option for those who couldn’t afford the services of higher end banks. This commitment to stability was further enhanced by Government stipulations that the treasurers, managers and trustees of the bank should not stand to gain any benefit from their position, helping to ensure that the bank’s affairs were conducted openly and honestly.
Trustee savings banks became very, very popular in the century following their creation, and by the early 20th century most towns in the UK had their own local services. Similar to building societies, trustee savings banks provided services specifically tailored to a local geographical location. Because of this, there was little competition between neighbouring banks; each catered to their own customers, and since there was little incentive for them to acquire new branches in new towns most TSBs remained relatively small. However, the combined holdings of the many hundreds of TSBs in the UK by the 1920s was in excess of £100 million, rising to almost £300 million by the outbreak of World War II in 1939. Clearly, TSBs were a popular choice and a major player in the consumer banking market, but they didn’t operate as a single entity like major banks and building societies did; instead, TSBs worked together under a loose organisational structure which left each bank free to manage its own affairs.
In the 1970s, trustee savings banks were co-operating as a loose organisation of 75 banks, with a combined holding of £2.8 billion. The majority of these banks were moderate in size, with most banks holding between £10m to £100m – only five of these banks had over £100 million on their books, but these five institutions constituted 25% of the total TSB holdings (implying that between them they held £700 million, or around £140m each). As a large portion of the savings market was held in TSBs, it became clear that a coherent system of centralised control was necessary. Over the course of the next decade, gradual improvements in TSB organisation drew these banks ever closer together, and they began to operate more as a corporate bank than as separate savings entities. One of the biggest changes during this period was the introduction of personal loans; for the first time, customers of TSBs could borrow money directly from their own bank, instead of needing to consider other high street options.
The 1986 floatation of TSB on the stock market marked the beginning of TSB as a single publicly traded entity, one which operated in a similar way to its contemporaries in the banking industry. Far from losing its heritage as a safe option for investors, though, TSB continued to offer savers a stable and reliable option for investment while forging its own path as a commercial bank. After more than a decade, TSB merged with Lloyd’s Bank to form Lloyd’s TSB, becoming the largest bank in the country by market share. As the new leader of the UK financial market, Lloyd’s TSB was the most influential and powerful lender in the market, and traded successfully for many years. However, the banking crisis in the early 2000s put Lloyd’s TSB under a great deal of pressure to bring the nation’s finances back into line, and in 2009 the bank was forced to accept part of the Government’s bank rescue package. This constituted a substantial investment by the Government in the bank, and was ruled to be state aid by the European Commission, requiring that Lloyd’s TSB sell off a significant portion of its assets in response.
As a result, TSB was reformed from many former TSB branches, along with the branches of Cheltenham and Gloucester (which Lloyd’s had acquired previously). The bank which we know today as TSB is therefore a combination of new and old; a bank with centuries of heritage which has been given a new lease on life. Although the company itself may be less than a decade old, TSB as an institution stretches back more than two hundred years, and can boast a strong identity as one of the nation’s favourite savings options.
The most important aspect of a home loan, from the perspective of a home owner, is how reliable it is. Knowing that your mortgage provider is rooted in stability, with a strong and well-established emphasis on ensuring that customers are treated fairly, gives customers the trust they need to bank with TSB. Taking out a mortgage with TSB gives homeowners confidence that whatever they’ve agreed to with the bank, that’s what they will receive; the bank is focused on maintaining high levels of customer trust.
TSB is an attractive choice for many buyers and homeowners, and the products they offer are highly competitive. The many different loans on offer are divided into different categories, according to the different buyers they will best suit, and these are detailed below:
As a first time buyer, you’re likely to be putting as much of your savings as possible into creating a deposit on your home. Getting a good deal on your interest rate is of the utmost importance, and the more money you can invest up front the less you’re likely to pay in the long run. However, since you’re not selling an existing property you’re unlikely to be able to put down a particularly large deposit; that’s why the mortgages available in this section of the TSB mortgage guide typically feature deposits from 5-10%.
In addition to the size of the deposit, first time buyers will need to consider the stability they’ll have after buying the property. Mortgage rates can fluctuate over time, as the Bank of England base rate increases or decreases, which means that bills can vary from month to month. As a new homeowner, this can be extremely hard to accommodate, since as we’ve already mentioned you’ll probably have ploughed most of your savings into the deposit. Therefore, TSB offers first time buyers the opportunity to take out a fixed-rate mortgage for the first years of ownership – this can be for the first 2, 5 or 10 years of your mortgage. Of course, a fixed interest rate can potentially cause issues for the lender if interest rates rise considerably above the level at which they’re fixed; the bank is paying interest to its own creditors on the money it’s lent you, and if they’re paying more than they’re receiving from you they stand to make a loss. Therefore a fixed interest rate is often set at a higher rate, in order to accommodate potential increases in the cost of lending.
The alternative to a fixed rate is a tracker mortgage, where the interest rate of your mortgage directly follows the level of the Bank of England base rate. This differs from a variable rate mortgage, where the lender sets the level at whatever they wish, because your mortgage rate will only increase when the base rate increases, and only by the amount it changes. This reduces your exposure to risk, and can provide a valuable potential option for first time buyers.
TSB are keen to provide first time buyers with an easy property purchase, and go the extra mile towards providing this by offering cashback to first time buyers upon completion of the property purchase. This lessens the financial burden on buyers who may be stretching as far as they can to buy their own property, and could represent a valuable incentive to buyers.
Trading up the property ladder is the goal for many homeowners across the country, and TSB are committed to helping them take the next step up. The requirements of movers differ from first time buyers substantially, so TSB offers a different set of products to reflect their needs more accurately. The main difference here is that moving home often creates a larger deposit; the money which has been paid into the existing mortgage can be used to fund the deposit on a new property. Therefore, those who are moving home can often afford to take advantage of some of the more attractive offers open to TSB customers, and the bank offers loans with better terms to customers who can make a larger deposit on their purchase.
TSB also provides home insurance for homeowners, and their service has been rated as 5 stars by Defaqto, the independent researcher of financial products. Home insurance is a vital part of home ownership, since the possibility of incurring large costs through damage or accident can make it difficult for homeowners to arrange payments. Investing in a reliable home insurance solution with a trustworthy provider like TSB grants homeowners the confidence they need to focus on their own day to day life.
Buy to let investment is a very attractive prospect, since it provides buyers with the opportunity to create a flexible revenue stream. Though the responsibilities of becoming a landlord are substantial, the ability to invest in a property for later retirement or simply as a source of profit makes buy-to-let investment a top choice for many UK buyers. In 2016, the UK Government introduced reforms to the laws regarding buy to let investment, which make it more difficult for buyers to make a profit on their purchases; however, the buy to let market remains an appealing choice for investors and the market for mortgages is still thriving.
Buy to let mortgages differ from residential mortgages in many key ways, and they reflect the fact that the mortgage is for a business rather than a residence. This means that the regulations for application are stricter, with tougher requirements on deposit size, earning potential and predicted rental income. Investors must be able to prove that they can afford to reliably service the mortgage as well as earning a decent salary.
The ability for homeowners to switch their mortgage from one provider to another promotes competition within the industry; customers aren’t locked in to a contract and can shop around, which means that lenders have to consistently offer competitive rates or face losing existing customers. Currently, the industry average time to switch is between four and eight weeks, but the Government has voiced its intention to encourage lenders to bring this down considerably, and though mortgage switches might not reach the 7-day period of utilities providers, they’re likely to become much faster than they are currently.
TSB is one of the few banks which recognises how important it is to provide a pain-free mortgage switching process, and has taken steps to make it as easy and smooth as possible. TSB provides legal help to customers of other banks who wish to switch to them, and even offers free valuation and standard legal work for most mortgage products. This reflects their commitment to providing the best products at the best prices, and rewarding customers instead of shareholders.
Remortgaging customers typically have access to all of TSBs mortgage products, and can also take advantage of free cashback if they’re an existing TSB current account holder. By making the switching process rewarding, simple and quick, TSB make themselves an attractive choice for customers of other mortgage providers.
Though the Trustee Savings Bank has come a long way since its foundation as a savings option for the poor, it has demonstrated its resilience and popularity amongst the general population. By continuing to offer high quality services at a competitive rate, TSB have shown that they’re more than capable of operating without the support of Lloyd’s, and can forge their own path in the world of consumer finance. This will become ever more important in years to come, as the UK financial services industry sees ongoing technological change and innovation – though the face of banking may change, the underlying principles of TSB will continue to define it in the modern era.