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June 2020 | Building Societies

Jeremy Wood: Small building societies could thrive

Jeremy Wood is chief executive of Dudley Building Society

Creating a picture of the building society sector in the next one to two years could only be speculative at best, bearing in mind the current situation.

Yet, it is fair to say that unlike other institutions involved in savings and lending, building societies like ours are better placed than most, not only to survive but to come out even stronger.

If we go back in time to the establishment of the building society movement, the principle of mutual benefit by pooling savings in order to advance funds to build dwellings might have seemed old fashioned in a pre-COVID market, one predominantly funded by shareholder capital. available funding.

Yet the tried and trusted principles of saving and borrowing through a mutual building society will likely provide the most available source of funding when the market recovers, whereas other sources of capital may take time to come back on stream.

On a savings level at the turn of the year, while the returns for savers might have been marginal at best, building societies were offering a better return on average than banks.

According to Savings Champion, more than two thirds (67%) of building society accounts paid a higher rate than the Bank of England base rate, which at the time was 0.75%, compared to just over half (51%) of banks.

The main point, certainly until the current crisis, is that although returns may be low, immediate access accounts – which make up the bulk of savings accounts – were better served by building societies than other providers.

When the market recovers, there is little to suggest that this will change. In terms of trust and approachability, a glance at the high street shows us that many banks have pulled back from serving local communities.

This is usually on the basis of cost, and because more customers are moving to online transactions. While there is overwhelming evidence of the popularity of online banking, with innovations such as e-savings helping a new generation appreciate the value of saving, for smaller building societies like ours, maintaining a retail presence is not just a business decision.

It is part of the unwritten understanding between us and the people we serve. Every piece of research tells us that while our members not only like the reassurance of a physical presence, through which they can withdraw or invest funds, we also provide a bridge and platform, acting as a social as well as a working hub for the community.

This identity, linked to our local members and their financial wellbeing, is key to our strength, and building societies like Dudley will maintain their presence on the high street as long as they are needed.

We have worked hard to make our branches more attractive to a wider audience, and to align more closely with local charities and organisations, around which the community can coalesce, as can be evidenced by our statement of corporate social responsibility.

Since the 2008 credit crunch, regional societies like ours have been reinvigorated by returning to our roots and making the most of that identification with the locality from which we sprang and the people we were originally set up to serve.

Without exception, the last 10 years have seen a resurgence in the importance of building societies, both as alternatives to banks for saving, and probably more importantly in this context, as mortgage providers.

At a time when high street lenders have become fixated with lending to a narrow specification, regional societies became particularly adept at providing an alternative source of mortgage funding, based around taking the time to fully understand an applicant’s situation and applying a more holistic approach to underwriting cases. small and nimble providing mortgages for those who do not fit the tick-box mentality adopted by larger high street names has led to a need for a more innovative approach to underwriting and product design, which is a skill which smaller and more nimble lenders like us have been very successful in developing.

Lastly, it is a good time to remind ourselves of this: because building societies accumulate reserves over many years and do not pay money out as dividends to shareholders or owner directors and partners, they are better able to navigate the consequences caused by unexpected events like the one we are currently experiencing.

In many respects, the mutual model offers a template which should be re-examined as a potential alternative to shareholder-driven businesses, which as we have seen in many cases, do not have the necessary reserves to survive long under less than ideal conditions.

The checks and balances that underpin building societies ensure that mutuality represents responsible behaviour in good times and bad. I am therefore confident that Dudley and its fellow societies will be strongly placed to provide funding when it is needed, as we have done through two world wars and countless economic crises.