Page 1: Introduction
Building societies are mutual organisations. This means that they have no shareholders and operate solely in the interests of their members. A member is a person who has a savings account or a mortgage loan. Each member has voting rights to influence how the building society is run.
The earliest building societies were established during the Industrial Revolution by skilled workers who wanted to save money together to build their own homes. The first known building society was formed in 1775 in Birmingham. Like all of the early societies, it was a terminating society and it closed after all the members had funded and built their homes.
The building society movement expanded as societies started to accept savings from members who did not want to build a house. This led to the formation of permanent building societies.
For many years, building societies dominated the mortgage market. A mortgage loan is a loan secured on a property. Most mortgage loans are used to buy a house. However, in the 1980s deregulation of the mortgage market took place. This removed government rules, regulations and laws from many aspects of financial services, and encouraged institutions such as banks to enter the mortgage market alongside the building societies.
At the same time, the 1986 Building Societies Act allowed building societies to offer a wider range of financial services than previously. It also allowed the mutual societies to demutualise (convert into banks). In 1989 Abbey National was the first building society to demutualise and become a public limited company (plc). The next development was in 1995, when the Cheltenham and Gloucester became a subsidiary of Lloyds Bank. Since then seven societies have demutualised. As some building societies converted, others began to promote mutuality.
This case study explores the two different organisational forms, mutual and plc, which now operate in the same financial market.