Building Societies Act Passes Meaning Greater Competition With Banks

The Building Societies Act 1986 was a staggering 38 years old and long overdue an overhaul.

Building Societies are mutual orgainisations (i.e., owned by their account holders) and restrictions on lending have long been in place to protect savers by requiring them to use a minimum of 50% of savers deposits for mortgage lending meaning it is much more difficult to go money markets and borrow money to then lend for profit for the benefit of all savers.

The Building Societies Act 1874 was introduced to encourage local ‘building society’ saving.  You save in an institution locally to then provider collective funds locally for others to borrow, build and buy homes.  Even today, you will note they are usually named after towns and regions e.g. Chelsea Building Society, Coventry Building Society, Earl Shilton Building Society, Nationwide Building Society, Principality Building Society (Wales), West Bromwich Building Society and the Yorkshire Building Society are some of the better known ones.

Do you have a local Building Society?  If you are interested, please see a full list of registered bulidng societies here https://www.bsa.org.uk/information/consumer-factsheets/general-information/list-of-uk-building-societies-and-associates).

Building societies acts have been updated a number iof times over the years and as we have said, the latest one from 1986 is 38 years old and was in need of an overahul given the fast paced changes in banking, lending and technology over the last 20 years or so.

Building Societies Act 1986 (Amendment) Act 2024

This House of Commons Bill has been hanging around on the ‘back burner’ since 2022 and was finally pushed through today as part of the governments ‘wash up’ period given the dissolution of Parliament.

The Act will now enable building societies to have more capacity to lend to UK customers, and to access emergency funding from the Bank of England in a time of financial stress, without it impacting on its old 50% deposit savings funding limits.

Comment

We welcome the news today as it will give societies a much better edge to be able to compete with the ‘super tanker’ banks that can more easily raise funds to try and offer competitive mortgages.  It will also open the gateway for a huge expansion in mortgage rate competition with greater availability for consumers.

Building societies will now be able to operate more like banks.  A level playing field offering competition in lending that is good for consumers but we hope that the FCA and the Bank of England will keep a 'close eye' as we have always liked to stability that building societies offer in terms of capital adequacy requirements and lending mainly from deposits taken rather commercial borrowing to protect consumer savings.