members and are obliged to
put their interests first. It is
illegal for a building society to
raise more than 50 per cent of
its funds from the wholesale
markets. Traditionally, most
of their funding for mortgage
lending has come from savings,
with societies having an average
of six savers for every borrower.
This systemic conservatism
helped protect mutual
societies from overexposure
to the securitisation markets.
Some, mainly larger, building
societies did get involved in
securitisation, borrowing on
the capital markets to finance
a proportion of their lending.
But even Nationwide, by far
the largest building society in
the country, kept its use of the
markets at sensible levels.
"Nationwide is not as
dependent upon the wholesale
market for funding as some
of its competitors, and we are
therefore in a much stronger
position than we otherwise
would be," said spokesperson
Lucinda Devine.
"Our business model is
different to the banks in that
we receive over 70 per cent of
our funding from retail deposits,
that is, our savers, and in the
last financial year our prudent
approach meant we were able
to fund 100 per cent of our net
lending for the year from retail
deposits."
That's not to say that all
building societies have always
been conservatively run. A
handful have made mistakes
and have had to be rescued
by bigger mutuals. Nationwide
stepped in last year to acquire
Cheshire and Derbyshire
building societies, after a large
commercial mortgage deal
went wrong at the former, and
the latter ill-advisedly bought
books of sub-prime loans
from specialist lenders which
subsequently experienced high
rates of defaults.
Yorkshire acquired Barnsley
Building Society which faced
collapse after losing up to
�10m in Icelandic Banks last
year, and Chelsea swallowed
up the Catholic Building
Society. Skipton rescued
Scarborough Building Society
this year, after it faced `difficult
trading conditions', and the
latest to go was Scotland's
oldest, Dunfermline Building
Society.
Until recently, no building
society had failed. When
a society ran into trouble,
another bailed it out. And the
recent spate of acquisitions
pays testament to the speed
with which mutuals will act to
bail each other out in order to
protect members.
SAFE AS HOUSES?
There are rumours that more
consolidation could be on the
cards in the mutual sector. But
if the society you belong to is
taken over, your status as a
member does not change, your
mortgage conditions will remain
the same, and your savings
are protected up to �50,000
� the same level of security
offered by a bank. And if the
meltdown in the global banking
system means you are reluctant
to put your money into a big
international bank, becoming
or remaining a building society
member is an attractive
proposition.
"The building society sector
has a history of mergers and
this is nothing to be concerned
about," says LeBroq. "There
may well be more mergers in
the sector but members will
remain part of a building society
and enjoy the benefits that this
brings � better customer service
and consistently better rates."
Independent research from
GfK NOP indicates that 75
per cent of building society
borrowers are extremely or very
satisfied with their mortgage
provider, compared to just 63
per cent of bank borrowers.
And as banks continue to
rationalise and lay off staff,
the comparative appeal of
building societies should only
improve. BS
"The recent
spate of
acquisitions
pays
testament
to the speed
with which
mutuals will
act to bail
each other
out"
yourmortgage.co.uk 11

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