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Ex-HSBC boss's stark warning around young people and property debt

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Sir Douglas Flint has first-hand experience of meltdowns in the mortgage market. The former chairman of HSBC steered the British lender back on track after the global financial crisis left it reeling in 2008. 

The crash in US sub-prime mortgages hit HSBC particularly hard as it owned a $118billion book of American loans. Now, the City grandee, 66, is warning that households should once again be wary of racking up giant debts to buy a home just as interest rates begin to rise. 

‘I personally don’t think this is the time to encourage people to over-leverage [borrow too much] in the housing market,’ he told The Mail on Sunday. ‘House prices, as a multiple of average income, are at an all-time high.’ 

Inspired: Sir Douglas Flint took on the IP Group role after a trip to China

Inspired: Sir Douglas Flint took on the IP Group role after a trip to China

Flint’s intervention comes just days after the Bank of England increased interest rates from a record low 0.1 per cent to 0.25 per cent. 

Economists now expect further increases to Bank base rate in 2022 to curb surging inflation. And it also comes just as the Bank relaxes mortgage rules that were imposed after the financial crisis to stop borrowers taking on unaffordable sums. 

The central bank plans to remove a requirement that means borrowers can only be approved for a mortgage if their finances show they could afford a three percentage point rise in interest rates. Ending the interest rate rule would help young people borrow more money to climb on to the housing ladder as house prices soar. 

It’s a message that clearly makes Flint extremely nervous after his experiences in the last financial crash. When it hiked rates this month – just weeks before Christmas and as Omicron cases surge – the Bank faced criticisms for surprising the financial markets. 

‘Pour pension billions into science’ Flint, who was HSBC chairman between 2011 and 2017 after serving as finance director for 15 years, says unpredictable moves like that are bad news for the economy. 

FLINT, 66: INSPECTOR GADGET

Home: East Sussex, small flat in London. 

Family: Wife, three grown-up children, three labradors. 

Favourite film: Gregory’s Girl, left. 

Favourite book: The Last Tycoons by William Cohan. 

Last holiday: Cape Town, cut short by Covid. 

Gadget: His children call him Inspector Gadget because he has so many phone chargers. 

Spare time: Walks the dogs and plays golf. 

A day in the life: Meetings with board members, discussing issues. At both IP Group and Abrdn, spending time talking to company bosses about what’s on their mind. 

If interest rates start to rise rapidly to tame inflation – and without a clear and calm course set out by the Bank – those who have taken on large debts to finance a house purchase could easily come unstuck. 

‘In all my time in banking, I learned that if interest rates move, no matter where they end up, if they moved in a pattern that is anticipated, then the economy absorbs that,’ says Flint. 

‘[But] if they moved unexpectedly, then it leads to much more [negative] reaction.’

 Was the Bank of England’s surprise interest rate hike in December too little, too late – leaving Britain hostage to rapid price rises in 2022? ‘If I was looking solely at inflation, the tendency would be for earlier interest rate rises,’ Flint says. 

‘But I don’t want to choke the economy when we’re seeing another slowdown,’ he adds. 

‘People can’t go to the office, and that’s showing an impact in the service sector and restaurants and hospitality. We were hoping for a great December, but we’re not seeing a great December.’ 

Since leaving HSBC, Flint has taken on chairman roles at FTSE100 asset manager Abrdn and lesserknown IP Group, a FTSE250 firm that invests in early-stage science and technology firms. 

IP Group was founded in 2001, initially in an exclusive partnership with the chemistry department of the University of Oxford, allowing the company to invest and develop ideas into viable businesses. It now works with a range of universities globally. 

Flint was inspired to take on the role after joining former Prime Minister Theresa May on a trip to China with a range of British start-up companies. So what does IP specialise in? ‘We don’t do gaming, gambling and dating,’ says Flint. 

Flint's intervention comes just days after the Bank of England increased interest rates from a record low 0.1 per cent to 0.25 per cent

Flint’s intervention comes just days after the Bank of England increased interest rates from a record low 0.1 per cent to 0.25 per cent

‘We do bioscience, green transition technology, and tech with an important social purpose. IP Group is not just a longterm investor with permanent capital because we’re a public company; it’s also a partner in terms of helping you get the right people on board and providing mentoring. The biggest company we’ve ever been involved with is Oxford Nanopore, a 15-year investment that finally went on to the public markets this year.’ 

Oxford Nanopore, which counts IP Group as its largest shareholder, is a genomics company that has helped scientists track the spread of Covid-19. It floated on the London Stock Exchange in September, with shares jumping 40 per cent on the first day of trading. The company has a market value of £5.7billion. 

‘Pour pension billions into science’ 

Relaxing rules that stop pension funds ploughing money into science, technology and infrastructure would give savers and the economy a huge boost, Sir Douglas Flint believes. The ex-banker, who is now chairman of life sciences investor IP Group, points out that large pension schemes in Canada and Australia are already major investors in UK infrastructure – yet our own pension funds aren’t. ‘Why not?’ he says. 

‘It’s really important for Britain that there are organisations – like IP Group – promoting, protecting and developing British science. The opportunity is harnessing the huge pool of money that’s going into defined contribution pensions [and directing it into these types of assets],’ Flint says. 

At the heart of the issue is a 0.75 per cent cap on annual pension fees. This makes it hard for pension funds to invest in more expensive assets like infrastructure, as the charges are typically higher. The Government last month proposed to simplify fees to encourage more pension funds to invest for the long term in growth industries that require patience. 

‘Oxford Nanopore has been the most important investment we’ve had for many, many, many, many years,’ says Flint emphatically. 

‘It’s one of the very few real technology companies that’s floated in the UK – the majority have gone to Nasdaq or Hong Kong.’ Was there ever a risk that Oxford Nanopore was going to float overseas? He says some banks did pitch for a listing overseas ‘but the company was very clear in its own mind, that having developed its products and its science in the UK, it wanted to come to the UK market’. 

The sector is certainly booming. Last week, pharmaceutical company Novartis struck a $1.5billion (£1.1billion) deal to buy Gyroscope Therapeutics, which has a London-listed parent company called Syncona. But Flint’s time at IP Group hasn’t all been plain sailing. Neil Woodford, the disgraced fund manager whose funds were shuttered in 2019 after a series of risky bets, was a major shareholder in IP Group. 

‘It’s a tale of two halves,’ Flint admits. ‘Neil Woodford was for a long period of time hugely important to investment in science and technology in the UK – he was one of the leading investors. And I think that shouldn’t be forgotten. He was a major shareholder in IP Group, but the crossover between what IP Group was investing in and what he was investing in was, in the latter years, incredibly small.’ After Woodford sold his holding in IP Group in 2019, the Railway Pension fund jumped on board to become one of the company’s largest shareholders with a 15 per cent stake. 

In fact, Flint reckons more pension funds should look to invest in British start-ups, life sciences, and infrastructure (see box). ‘One of the biggest opportunities is for the Government to look very carefully at the policy and regulation around areas that it wants to attract investment into – so technology, bioscience, infrastructure,’ he says. 

‘If we’re going to have a global relevance, science is one of the areas where we genuinely can claim to punch well above our weight and have a long tradition of extraordinary success.’ 

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