It’s close to 250 years since the first building society was formed and despite widespread demutualisation’s at the end of the 20th century, traditional building societies still hold a sizeable share of the mortgage market and there is no sign of them slowing down, according to local building society, Swansea Building Society.
In 2018, the UK’s 43 societies lent £68.9 billion, according to the Building Societies Association (BSA), with net lending up 12% on the year before. As a result, the BSA says that building societies now grant nearly a third (31%) of all new mortgages.
It’s not just the big, national names making headway. In 2018, Legal & General’s Mortgage Club saw lending through regional building societies rise 17% year-on-year, contributing £1 in every £10 lent through the club. Eight new building societies were added to the Club’s panel over the year, taking the number of mutuals to 31 which included Wales’ own Swansea Building Society.
Some of the increased activity building societies are seeing is undoubtedly due to their continued face-to-face offering and their personal, tailored and common-sense approach to lending. The investments that brokers and mortgage clubs have made in criteria and sourcing systems means that products from these smaller lenders are now increasingly becoming a legitimate option for borrowers.
Alun Williams, Chief Executive of Swansea Building Society, said:
“Traditional building societies play a crucial role in today’s mortgage market – even with mainstream market competitors. Building societies, like Swansea Building Society, can offer services that mainstream market lenders simply cannot – and this is what sets us apart from the competition.
“I strongly believe that although the increase of digital systems can speed processes up, they can also be damaging to the customer relations aspect of the process. We ensure to offer every customer a tailored and personalised service, so they feel valued and understood. Spending money on buying a house is likely the biggest purchase our customers will make, and that should not be compromised, nor should our customers feel left in the dark though any stage of the process.”
As technology improves, there is a more level playing field where any lender with a good product that is meeting a demand can compete. Whether lending to a first-time buyer, a last-time buyer, or a potential borrower that is self-employed, smaller niche lenders are integral to the health of the mortgage market.
Swansea Building Society, with its manual approach to underwriting and no credit scoring can take each borrower’s personal circumstances into account, providing greater flexibility, and enabling them to better understand and meet their customer’s needs.
The mother of invention
A good product is still essential, though, and the real reason that many regional building societies are thriving is that, when it comes to tackling some of the housing market’s biggest challenges, they punch above their weight.
In part, this is down to necessity. In the mainstream market, smaller building societies will always struggle to compete on rates with big lenders that enjoy larger economies of scale. With interest rates so low, margins on lending is often tight. However, this is encouraging building societies to be creative and look for other ways to compete, which is good news for borrowers, and the market.
For example, Swansea Building Society is an active player in family assist mortgages, whether that’s simple guarantor mortgages to allow first-time buyers to proceed where they might otherwise struggle to find an affordable loan, or for the parents to become party to the mortgage.
Cradle to grave
Crucially, building societies are helping to fill gaps in lending resulting from the huge rise in self-employment.
The numbers are up by approximately half since the start of the decade – with an extra 1.5 million people working for themselves – and many struggling with the requirements of traditional lenders to prove their income.
When assessing a mortgage application for a self-employed customer, Swansea Building Society works closely with the customer’s accountant and will consider various sources when assessing income. Retained earnings and one-off items can be added to income figures where relevant and other provable sources of income can be used to calculate total income. The Society does not just look at net profit or drawings when assessing the customers income for mortgage purposes.
Swansea Building Society can also help older borrowers, many of whom are poorly served by larger lenders. This can be by offering repayment terms that take borrowers well into their retirement, lending to those who are already retired (up to age 85) and/or through interest only facilities where credible means of repayment are available.
Regional building societies operate in the heart of their communities and feel that it is their role to respond to customers’ needs – it’s what they were established to do. Swansea Building Society can also assist customers looking for a short-term bridging facility to move home (even if they have not sold their own home), arrange finance for those building their own property (self-builds), add a guarantor to a mortgage and/or assist those who have an agricultural restriction on the property and are looking for a mortgage.
In responding to both the demands of young first-time buyers and the needs of an ageing population, societies like Swansea Building Society can play an even more powerful role in providing the financial tools of tomorrow that will help bring greater generational fairness.