UK Building Societies Suffering From a Fall in Home Loan Lending

Building societies in the UK saw a fall of more than £1 billion in their mortgage lending during March 2008 according to published home loans data. They also observed a drop in advanced net loans from £1.8 billion to £580 million compared to the same moth of 2007.

This decline which equates to a 68 per cent slump, has led to building societies tightening their lending far more than their mortgage bank rivals. One in five prospective homeowners used to be accepted for loans from building societies, but this figure stood closer to one in ten.

Data released from the Bank of England showed that the home loans market had reduced by over 40 per cent, but that building societies had reduced their share of net lending, which included customers repaying their mortgages, at a faster rate than the overall market.

After analysis of the data, the results revealed the difficulties that faced lenders wanting to raise money, as a result of market changes.

Although gross lending, including all home loans had fallen in a year, building societies still held a healthy market share of 15 per cent, only a small drop down compared to 17 per cent a year ago.

However the net lending figures indicated that building societies were losing their customers at a quicker rate than they were able to entice new ones. There was also evidence that they were unable to retain borrowers who were reaching the end of their mortgage agreements, which was either as a result of uncompetitive rates meaning customers looked elsewhere, or because the societies were becoming more stringent about who they lent to.

A spokesperson for the Building Societies Association said, “This fall is a consequence of gross lending coming down and building societies pulling back on the amount they lend so that repayments have gone up.

The Abbey made a claim to have sold one in six of all the mortgages sold in the UK during the first quarter of 2008, however, this was tempered by reports that most of these customers were re-mortgaging and very few new applicants were able to meet the necessary credit criteria. It was also suggested that Abbey’s new 16 per cent share of the market compared to their traditional 9 per cent share, was as a result of Northern Rock’s downfall meaning they were no longer competing for business. Other lenders were facing problems too as a result of the credit crunch.

The Building Societies Association claimed that small lenders were being swamped by new applicants if they appeared at the top of the ‘best buy’ tables, with some of the big lenders aiming to stay at the bottom of these lists by suddenly raising rates or pulling out of the market.

Building Societies had however, been gaining new saving customers due to many financial firms being anxious to attract deposits to help support lending. Societies on average fund 70 per cent of their lending through deposits, with a new high of £1.2 billion of saving credit being reported for March 2008.