Despite the turbulent market conditions during the second half of 2007, the building society sector has had a very good year. Indeed, there is growing evidence to support the view that building society service standards are higher than those of banks and consumers seem to be realising this.
In fact, research carried out earlier this year for the Building Societies Association (BSA) found that at building societies, 71 per cent of savers were extremely or very satisfied, compared to just 56 per cent of people saving with all other institutions.
When it comes to mortgages, 72 per cent of customers were extremely or very satisfied at building societies, versus 62 per cent who said the same of other providers.
Competitive offerings
This proves the extent of the service satisfaction in the two core areas for societies. However, it is not just with great customer service that building societies excel. The recently published Moneyfacts report on most consistent savings rates shows that building societies lead the way in offering attractive interest rates over the long term. Building societies currently account for over 70 per cent of all savings products offering the best rates over both the last 18 and 36 months.
These competitive interest rates have continued to attract savers to building societies in their droves. Recent BSA figures show that in October, societies attracted record savings of more than £3 billion.
The Moneyfacts research shows that building societies also top the mortgage tables as well. 70 per cent of the top 250 mortgages available today across the whole market are offered by building societies. One of largest lenders in the market– which 10 years ago changed its status from that of building society to bank – is no longer offering many mortgages at all.
Influencing our future
Northern Rock gave up its status as a building society in 1997. However, it is interesting to see that the recovery plan of at least one of the bidders involves making it as much like a building society as possible. We all know that it is not really possible within a non-mutual, shareholding-based organisation, but it does show the appeal of the society model.
Having said that, it is imperative to the financial services industry that the future of Northern Rock is sorted out as soon as possible. The reputation of UK financial services, and the future progress of the market, will be heavily influenced by the outcome of current events. In times of stress, consumers know who to trust, and it is therefore no coincidence that the flow of savings into genuine building society accounts this year was a record, by far.
The whole building society model is more transparent, simpler, more prudent and more trusted and we simply do not have the same motivation as banks to take massive risk positions in pursuit of profits for shareholders. This prudent, responsible lending has great benefits to our members. While other providers and banks are pulling product ranges, building societies have instead been able to introduce new products with competitive rates.
Inevitable correction
2007 saw an inevitable correction in the markets. The growth of the past 10 years was unsustainable. However, alongside the recent ‘credit crunch’ the market is now under additional pressure going into 2008.
The housing market will undoubtedly experience a slower rate of growth in 2008 as affordability concerns and a lack of confidence in the market see a decline in the number of house purchases. Instead, we will see a shift in focus toward remortgaging for both the residential and buy-to-let markets.
However, excess demand over supply will prevent house prices falling – so I expect modest house price growth of roughly 1-2 per cent for 2008. This will see gross lending fall to around the £320 billion mark – much lower than the CML forecast. I anticipate a lowering of interest rates to 5 per cent by the end of 2008, which will help to stimulate some activity in the market.
These are difficult times and in a more difficult economy lenders have to take extra care to be responsible. But, apart from what is happening with Northern Rock and a few specialist lenders, other mainstream lenders are still keen to do business. There will still be competitive deals out there next year and building societies will continue to prosper.
