A building society chief has warned the Bank of England about ‘unintended consequences’ of introducing negative interest rates to get banks lending.

David Cutter, chief executive of the Skipton Building Society group, said such a move which would see the Bank of England effectively charging banks to look after their reserves would hit borrowers and savers.

The prospect of negative interest rates was raised by Bank of England deputy governor Paul Tucker this week. He described it as a ‘radical idea’.

Mr Cutter said it was unlikely Mr Tucker would have raised it unless the idea of negative equity had been discussed within the Bank of England.

He said: “I would urge the Bank to beware of the unintended consequences of such an unprecedented move. If it was to happen we would have to pass on the extra costs involved which would bring about higher mortgage charges and even lower savings rates.

“ I’m not sure it would have the desired impact of generating more bank lending as the banks also remain under pressure to maintain and improve their capital adequacy.”

Mr Cutter was speaking while revealing the Skipton’s results for 2012, which saw group pre-tax profits soar by 64 per cent to £36.4 million, against £22.2 million in 2011.

He said the result, mainly through widening interest rate margins from 0.52 per cent to 0.61 per cent, left the society in a strong position to increase lending further in 2013. The society’s tier one capital ratio – a measure of financial strength – increased from 10.5 per cent to 11.1 per cent over the year.

The level of mortgage arrears fell to below the industry average at 1.3 per cent of loans, while charges for bad debts more than halved from £30 million in 2011 to £12.3 million last year. Savings rose by £200 million to £9.46 billion.

Gross mortgage lending was £1.5 billion and followed a threefold rise to £1.7 billion in 2011. Mortgage balances increased by 3.5 per cent to £10.5 billion from £10.1billion.

The Connells estate agency business contributed £36.2 million to group profits, compared with £35.8 million a year earlier.

Homeloan Management Limited, a mortgage servicing business, moved back into profit with pre-tax profits of £800,000 following a pre-tax loss of £3.1 million in 2011, after winning new clients and extending several existing contracts.

Mr Cutter said: “We are pleased with the further upturn in our performance during 2012, which demonstrates that we have continued to balance appropriate business growth with prudence and a continuing focus on providing for our members’ financial needs.

“We are not complacent and keep a watchful eye on future external shocks which could impact the Society.”