Building societies are financial institutions that are owned by their members, who are individual customers with savings in or borrowings from society.
This differs from banks, which are owned by external shareholders. The principal purpose of building societies is to make residential mortgages, which must be substantially funded by individual customer savings.
Historically, the funding limit set for building societies required at least 80% of funds to come from customer savings.
This has gradually reduced to 50%, and although an improvement to the limits set when the Act was originally implemented in 1986, the reduction needs to go further to allow building societies to compete effectively with banks.
This becomes clear when looking at building societies’ market share of residential mortgages.
Building societies currently only account for around 23% of residential mortgages by value in the UK and 19% of household savings but historically their market share of residential mortgages has been much higher, accounting for about 60%.