The inquiry into the ‘true cost of demutualisation’ argued that organisations’ demutualisation had ‘restricted consumer choice.’ However, the group admitted competitive market pressures had put an increased burden on the mutual model.
In its evidence against mutuals, the inquiry revealed Northern Rock had performed strongly since its conversion to plc status in 1997. At the time of the inquiry, a spokesperson for Northern Rock, said: ‘It is clear that mutual status does not encourage efficiency.’
Philip Middleton, partner at Ernst & Young, added that, as a result of rising regulatory costs and tougher competiton between mortgage products, mid-sized building societies would suffer.
As part of the inquiry, the All-Party Parliamentary Group for Building Societies and Financial Mutuals called for the Financial Services Authority (FSA) to take a greater role within the sector, with the regulator making a judgement on the amount of funds a society could raise from the wholesale market.
However, James Cotton, mortgage specialist at London & Country, said plc versus mutual was not a factor when deciding mortgage policies, despite the All Party Group revealing that mutuals performed better in terms of more competitively priced products. He said: “It would depend on the type of deal the borrower is after. On the whole, building societies do tend to have good rates, such as the small lenders that often get overlooked. However, the mortgage market, with its increased competition, means you can’t split it down the middle. The top few are a decent mixture of both, mutuals and non-mutuals.”
