‘I Will Survive’ is a song that members of the building society sector have been humming along to quietly for many years as the debate on the fate of this area of financial services rages on. The latest topic to fuel the fire was the announcement in September of the Nationwide and Portman Building Societies merger creating what has been dubbed a ‘super-society’.
Some pundits predict that ‘the end is nigh’ for this sector and we are due to see a spate of consolidation and demutulisation simply to keep these companies alive, while others have a more positive view of the future. As sales director at Stroud & Swindon Building Society, you may have guessed that I am firmly in the latter camp. This is not just blind optimism, however, it’s backed up by solid facts.
A healthy market
Firstly, this area of the market is very healthy – very healthy indeed. The Building Societies Association (BSA) recently announced record gross mortgage advances for the month of September amounting to £5,047 million (up from £4,147m in the same month last year). To put this further into perspective, the 61 mutuals in this sector have total assets in excess of £285 billion. They also hold residential mortgages of £190 billion (just under 18 per cent of the total outstanding in the UK) and retail deposits of £185 billion (19 per cent of all such deposits in the UK).
Admittedly the top six or seven building societies hold a healthy percentage of these funds, but the medium-sized societies, such as Stroud & Swindon, Leeds, Kent Reliance, Derbyshire and Newcastle all have significant assets. So clearly this not a sector that is shrinking and falling by the wayside of the financial services highway.
In addition to possessing a healthy balance sheet, building societies (especially those that are small to medium-sized) have strong support at ‘grass roots level’. Overall, this sector boasts 2,100 branches and 46,000 employees (full-time and part-time), spread across the whole of the United Kingdom. This is quite a different story from most financial institutions, which tend to base their operations in the financial heartlands of the Square Mile, Edinburgh and Manchester.
This ‘regionality’ and the widespread support of community initiatives by building societies means that many consumers are loyal to what they consider ‘their local society’. The mutual nature of building societies also serves to foster this feeling as consumers have some control over how ‘their’ financial institution operates.
Consumer support and loyalty
This regionality and accountability to local communities fits well with the growing tide of consumer support for sourcing products and services closer to home. After all, if you choose your chicken due to its regional nature, why shouldn’t you consider doing this for your mortgage, if it offers good value?
Currently, the depth and strength of the loyalty inspired by building societies can best be seen in the long-running campaign across several national newspapers objecting to the closure of any branches. So essentially, these companies have financial strength and the support of consumers – something that not all other organisations can boast.
In addition, the small to medium building societies also have the size and manoeuvrability to offer consumers a better deal on certain products than most banks do. Currently a two-year fixed mortgage from Lloyds TSB will mean a £699 fee and a pay rate of 5.09 per cent. While I would not suggest that ‘best-buy’ tables are the answer to the question of ‘relevance’, they are certainly a standard well used by UK consumers. A number of much smaller building societies could beat this offering and it is fair to assume the consumer is thinking more about the size of their monthly repayments than the size of the organisation.
Innovation and reaction
In addition to having the capability to provide basic ‘best-buy’ products, many building societies also have the ability to launch more innovative customer offerings due to their size. Rolling out a 15-year fixed rate mortgage deal at 4.99 per cent across a branch network of 22 offices is infinitely easier than trying to do the same across 680 locations. This ability to identify a niche area and react quickly to a need is one of the biggest factors that will help to insure the future of the smaller building societies.
Yes, the building society sector faces challenges. Most businesses do, whether they operate in leisure, retail, house building or financial services – after all, without these drivers there would be little need to develop and better our product offerings. The building society movement has a long and successful history with numerous examples of innovation and diversification, so when you take the factors listed above into account, you can’t help but believe that this sector still has ‘all it’s life to live’ and ‘all its love to give’.
