How Building Societies contribute to the UK economy

Credit: Alamy

Social purpose

Building societies were established to help people buy a home of their own, with individuals pooling their savings to fund mortgages. That purpose continues today - as customer owned businesses, they now serve over 25 million people across the UK.

Societies help over 3.5 million families and individuals to buy their own home and almost 23 million people save and build their financial resilience.[1] That’s 23% of all total outstanding residential mortgages (over £351 billion) and 18% of the UK cash savings market and 40% of cash ISAs (over £328 billion).

Mutuality

Mutuality for building societies means being customer owned and benefits the wider financial services ecosystem through increased consumer choice, product innovation and greater systemic resiliency.[2] The sector is financially strong, with an average Core Equity Tier 1 ratio of 20.6%, compared to 16.2% across the big banks.

Building societies also have a different ethos and culture. They do not pay a shareholder dividend and take a long-term view to use profits to reinvest for present and future members. This, in turn, shapes behaviour and decisions[3] and allows them to focus on people, purpose and place. In fact, staff working for building societies say 39% of all the value created goes to their customers, while staff at PLCs say it is 19%[4].

Helping people onto the housing ladder

Building societies specialise in mortgages, supporting people to buy a home of their own. Aside from standard mortgages, they serve diverse groups like first time borrowers, self-builders, older borrowers or mortgage prisoners, and can provide tailored support for borrowers. 

Societies have helped almost 300,000 people to buy their first home in the past three years, through products such as Family Assist, First Homes and shared ownership mortgages from societies like Nationwide, the Bath and the Family. 20 societies now provide mortgages for people over 65, providing flexibility as people work for longer, and some, like the West Brom, provide mortgages for mortgage prisoners who are able to switch.

11 building societies now offer green mortgages, which provide a lower rate dependent on the EPC rating or a property or additional lending to carry out improvement work on it. Last year 40% of the Ecology’s loans benefited from an interest rate reduction of up to 1.5% following an improvement in the property’s energy rating in 2020.

Helping people to save

Building societies provide a home for people’s savings. They do this through a range of savings accounts, such as regular savings accounts, cash ISAs, child trust funds, prize-linked savings, charity accounts and Lifetime ISAs. In the past three years, building society savers received over £2.4 billion more in interest than they would have received at the big banks. Looking ahead BSA members have set an ambition to achieve a million new workplace savers by 2025 in order to help people become more financially resilient.  This is especially critical for the 7.5 million[5] people in work who have no savings at all.

Contributing to their communities

Communities are important for building societies, which are all based outside London. Many building societies help educate the next generation to be more financially resilient through financial education. One example is the Yorkshire Building Society’s Money Minds scheme with excellent feedback as 97% of students said they learnt something new and feel more confident about money.

Branches are much more than a place to do business. They often act as community hubs, offering places for local groups to meet or for communities to access other services, such as the Newcastle’s Yarm branch, co-located with a library.  Whilst a branch may close or be relocated, branches remain a core part of their community presence. 

Increasing building societies’ contribution

There are three asks to ensure that building societies increase their positive impact on the UK:

• Parity of esteem: We need government and regulators to consider different business models when developing policies.
• Legislative change: We welcome the current consultation on the Building Societies Act. This recognises the need for changes, which must be implemented.
• Appropriate regulation: The Treasury and PRA are consulting on introducing proportionality into future regulation and we need to see these principles extended across other departments and regulators.

Related

We now have an unprecedented chance to benefit building societies – let’s seize the opportunity

By Building Societies Association

02 Aug 2021

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