For years, if you needed a large mortgage the chances are your broker would approach a bank for the loan. Building societies have traditionally specialised in smaller loans and many still maintain maximum lending limits, which are typically under 1 million.
However, plans to relax building society funding rules could soon put mutual lenders on the same footing as the major banks. Here, we look at the planned changes and how building societies could soon start to compete on a level playing field with major high street banks.
Changes to regulations could offer more choice to high net worth mortgage clients
Proposals recently unveiled by the UK Government would allow mutual lenders such as the Nationwide, Chelsea and Yorkshire building societies to raise more funds from non-members. At present, they can only source 50 per cent of their funding from non-members with the rest having to come from savers, mortgage borrowers and shareholding investors.
AOL Money reports that the Treasury's vision for the sector, which will go to consultation, sets out how the recent recommendations of the Independent Commission on Banking will apply to this sector.
The main advantage of relaxing the funding rules would be that building societies could obtain more funds from the wholesale money markets. This may not be a priority for these lenders immediately, however, considering that wholesale funding is currently expensive due to the ongoing global financial crisis this may change in the future. UK societies currently raise around three quarters of their funding from members.
Adrian Coles, director-general of the Building Societies Association, said he welcomed the Government's focus on their sector. He said: "Our sector is diverse and provides services to around 25 million customers, through a model that is very different both in structure and in ethos to the plc banks. I would echo the high level principles set out in the paper for our societies to be able to compete fairly, free from inappropriate burdens and maintain our distinctive approach and lower risk business model."
Mark Hoban, the Financial Secretary to the Treasury stated that the Government is committed to increasing the amount of choice and diversity in financial services and that they believe building societies can play a vital role in enabling this change.
Islay Robinson, director of London mortgage advisor Enness Private Clients agrees. He said: We welcome any legislation that opens up competition within the mortgage markets. Our large mortgage clients would certainly benefit from greater innovation and competition in this special sector which could drive down current lending rates and result in a much wider choice of high net worth mortgage products. In the past, clients seeking large mortgages have often faced a relatively small pool of lenders who would be prepared to advance amounts in excess of 1 million. I hope that allowing building societies to more aggressively compete with banks will allow us to provide better advice and more options to our high net worth finance clients.