Building Societies Versus Banks

by Mark Johnston

With mortgage rates and offers now changing almost daily it is more important than ever to shop around to find the best deals.

Kevin Mountford, of, said “if you want the best rate on your savings and mortgage, you need to shop around. Loyalty to any one institution, whether it is a bank or building society rarely pays”.

Articles that compare building societies and banks nearly always prove controversial and always generate plenty of debate… here goes!!

Some research has suggested that banks in general offer more competitive deals than building societies on both savings and mortgages.

However, new research from the Telegraph shows that building societies are now increasing their mortgage lending and offering more competitive rates in both savings and home loan markets, especially for first time buyers and those who do not have 25% equity in their homes.

Ray Boulger, a mortgage broker at John Charcol, said “while the stronger players in the building society sector are now doing well, particularly in the mortgage market. There are also some banks notably HSBC, Barclays, and ING Direct that have also increased their lending”.

After the financial crisis there are now around 57 building societies, all of which are in relatively robust financial health.

A building society is a mutual organisation; this means that instead of having share holders, it has members who collectively own the business and are also its customers.

Each building society invests its profit back in to the business and unlike banks they do not pay dividends to share holders, this enables the building society to therefore offer competitive rates.

Martin Shaw, of the Association of Financial Mutuals, said “mutuals take a more conservative approach to growing the business, rather than growth at any cost. They still want to make a profit but do not have to make a profit at all costs”.

A recent survey found that many consumers thought building societies were more personal, approachable and therefore more trustworthy than banks. Building societies therefore have significantly higher levels of satisfaction with customer service.

Building societies dominate the consistency tables, they may not always be at the top of the best buy tables but their consistent good rates have meant that they have performed well over the long term.

Data from, a comparison website, showed that the only area where building societies provided more value than banks was with fees. Fixed rate mortgage fee for example from banks average £983, while the average fees from building societies were £837.

However, the problem with building societies is that they tend to lend within a specific geographical area. Although some  experts believe that if the money people save is then being lent to people in their own area to reinvest in property, then they are contributing to the economic success of that particular region rather than their savings being ‘leaked out’ to more lucrative property bubbles elsewhere in the country.

Banks do however have more customers in the grand scale than building societies and therefore lower unit costs which means that they still out perform building societies in attracting new customers.


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