Adding value - the case for building societies
A Building Societies Association case study

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Page 2: The role of building societies

The primary business of a building society is to:

  • attract savings from its investing members
  • make loans for house purchases to its borrowing members.

The savings of the investing members provide most of the funds that the borrowing members use to buy their properties. The borrowers pay interest on their loans and this is used to pay investors interest on their deposits. About 23% of all outstanding residential mortgages in the UK come from building societies, but they currently account for nearly a third of new mortgage business.  They also hold about 18% of all personal deposits and again, account for about a third of all new business in this area.

A number of societies offer related products such as offshore accounts, cheque accounts, credit cards and stockbroking services (the purchase and sale of fixed interest securities and of shares). Some provide estate agency services and many also sell a range of insurance products. Building societies operate under their own specific legislation: the Building Societies Act 1986, which was amended by the Building Societies Act 1997. This act relaxed the regulations governing the societies.

Key Data at the end of 1999
Assets £160 billion
Branches 2,400
Staff 40,000
Investors 17 million
Borrowers 3 million
Note: All statistics include Bradford & Bingley Building Society, which announced in April 1999 its intention to put a formal demutualisation recommendation to its members in summer 2000.

The Building Societies Commission, which is appointed by HM Treasury and reports annually to Parliament, regulates the societies. Building societies that sell products such as life insurance are also regulated under the Financial Services Act and governed by the self-regulating bodies established under the Act. The Building Societies Commission will disappear and become part of the Financial Services Authority (FSA) which will regulate building societies under the proposals contained in the Financial Services and Markets Bill, currently making its way through Parliament. Building societies also support the industry-wide codes of practice that cover banking and mortgages.

Building Societies Association | Adding value - the case for building societies