BUILDING SOCIETIES

Building societies account for the majority of mortgage lending in the UK.

The Building Societies Act 1986 enabled the societies to extend their activities to borrowing and personal loans, in addition to traditional mortgage lending. It also allowed them to borrow (depending on their asset size) up to 40% of the money they needed to lend, from the London moneymarket.

However, their main business is still mortgage lending and they finance that lending mainly from the savings of their members. This means that they do not need to match their lending rates quite so closely to the interest rates set by the Bank of England and may be able to delay increases or reductions for a time. 

Nevertheless, it does mean that they have to offer relatively high rates to savers to encourage them to save with them. Many building societies have decided to change from being a mutual organisation to a publicly quoted company on the Stock Exchange and are therefore able to raise greater capital from the money markets. Competition has resulted in fewer differences in lending practice between banks and building societies. Borrowers will find that differences in lending practice will depend more upon commercial differences in lending policy between individual lenders than intrinsic differences between banks and building societies