A mutual perspective


by Paul Broadhead, head of mortgage policy, Building Societies Association


Mutuals offer the choice, diversity, customer service, efficiency, and democracy that the coalition Government is seeking as part of a renewed, reshaped and reinvigorated financial services landscape. So, having made these assertions, what do UK mutuals really bring to the table? Well, for a start the sector is built on a business model that, in general, did not require taxpayer support and that delivered a strong recovery in financial results during 2010. Mutuals’ sensible attitude to risk sees levels of mortgage arrears, proportionately, around two thirds of the industry average; their attitude to customer service is second to none; on a wide range of customer satisfaction measures they exceed those in the public company sector; and perhaps most importantly, they offer a wide range of increasingly attractive mortgage and savings products.


Mutuals have their roots firmly in the communities that they serve, whether local, regional or national and as such are well equipped to provide a local solution to a local challenge. Smaller building societies can be fleet of foot when developing innovative products and are able to react to changes in their local markets quickly.


In recent years mutuals have punched well above their weight, particularly in terms of the amount of lending for affordable housing, both shared ownership and shared equity. Some have even entered into local deals in their heartlands with housing associations focussed on resolving local issues. Mutuals have also continued to lend to first-time buyers; over a quarter of all


loans in 2010 by mutuals were for first- time buyers.


And the majority of lenders providing finance to self-builders, an area of increased Government priority? You’ve guessed it, they are mutuals. It is common across the sector to see a different approach to underwriting mortgage loans. While some larger mutuals have some automated processing systems and employ differing levels of credit scoring, many others still underwrite each loan manually which enables each case to be assessed on its merits.


Those borrowers with more complex needs often find a mutual lender willing to lend to them; the customer has the opportunity to fully discuss their needs with an underwriter and can also explain their situation fully.


Former BSA chairman David Webster’s speech at our recent annual conference highlighted the opportunities mutuals now have, and the plans for many to increase their mortgage lending this year. The generally up-beat event was marked by a huge confidence that for mutuals the worst, for the time-being at least, was over and that the market was crying out for the service, products and


“Smaller building societies can be fleet of foot when developing


innovative products and are able to react to changes in their local markets quickly”


approach to business that mutuals can offer. One notable feature of the recession is


that size has not provided any indication of success. The largest mutuals have been successful, as have many of the smaller institutions. One can hardly assert that size has been closely correlated with success in the banking sector. What really matters is having a sensible business plan and a strong management team and board capable of implementing it. There is plenty of evidence that many mutuals, of all sizes, possess both of those characteristics. I am confident about the role that mutuals continue to play. First, contrary to the views of some commentators, mutual mortgage lenders remain open for business. Indeed three of the top ten lenders - based on amount of gross mortgage lending - in 2009 were mutuals, as were nine of the top 20. These figures are likely to be at least matched when the data for 2010 becomes available.


Across the vast majority of our members, capital ratios, a key indicator of financial strength, increased in 2009 and 2010, and reliance on the wholesale funding markets decreased. Cost ratios have been cut in almost every society, and well over half of our members have cut the absolute level of their costs. Indeed, one of the big firms of auditors, in their September 2010 analysis of the sector, noted that “cost control has been a key plus point in societies’ recent performance”. So, the sector is open for business, it’s getting more efficient, and it maintains very high service and lending standards. Linked closely to high levels of service is their democratic structure. Customers are offered a say on topics such as who is on the board of directors and board remuneration policy. I don’t believe there are any other institutions in financial services in the UK that give customers a say in that crucial decision.


mortgage introducer JULY 2011 39


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