Building societies lead innovation march

Building societies have injected fresh innovation into the mortgage market at a time when products tend to be limited to the lower loan-to-value ranges and are offered mainly to those with an impeccable credit history.

Last month, Newbury Building Society launched a family offset at 3.95 per cent up to 95 per cent LTV, which allows one or two family members to use the savings they have in an NBS savings account in the same way as a normal offset mortgage.

Saffron Building Society introduced a 95 per cent LTV rent-to-buy mortgage, which takes into account a borrower’s rental payment history in their affordability calculations.

Also last month, Yorkshire Building Society, through its intermediary arm Accord Mortgages, rolled out its trackerto-fix hybrid mortgage to all its partners, following a pilot launch with Concordia earlier this year. The product offers borrowers a two-year tracker at base rate plus 1.69 per cent, which then switches to a three-year fixed rate starting at 3.64 per cent.

Building societies have also been more active in the mortgage market in the first half of the year, with gross lending up by 20 per cent to £10.2bn, from £8.5bn in the first half of last year.

Building Societies Association head of mortgage policy Paul Broadhead says the current spate of innovation is a good sign.
He says: “For the last two years, there has been a lot of caution in terms of innovation because of the uncertainty over regulation. But at the moment, competition is starting to creep back into the market.

“If you look at the recent results of the building societies, it is clear the sector is making a strong recovery off the back of the recession. This means they have a desire to increase their levels of mortgage lending.”

Coreco director Andrew Montlake says: “Building societies are back with a vengeance, which is a very welcome return. The advantage building societies always had is they are a bit smaller, so can be a bit more innovative.”

Broadhead says building societies are closer to their customers than the big banks, meaning they provide products to meet demands.

He says: “A lot of the big banks have to design products by committee, which takes a lot of time. Our sector, given its size and its closeness to its customer base, can be far more fleet of foot when designing products.

“They can assess their local market, see where the gap is and design a product to address that gap very quickly.”

In the past, building societies have been labelled as conservative and the sector has not been associated with innovation on a large scale.

London & Country head of communications David Hollingworth says: “Building societies bring something different to the table. The stereotype that they are conservative is unfair to apply across the board. At the moment, it looks like they are going to shake off that image entirely. Over the years they have shown they can compete on price and can show inventiveness in terms of how they put products together.”

IMF Mortgages partner Ian Marcusfield believes building societies have no choice but to innovate or risk losing their customers to the bigger players.

He says: “The big boys are cherry picking the best clients so if you want to break into the market as a smaller player, you have to come up with innovative ideas. Some building societies are regional and get to know the customers in their area and get to know what they want.”

Hollingworth and Broadhead believe innovation in the building societies sector is set to continue.

Hollingworth says: “I cannot see why they will not be able to carry on what they are doing. They have ridden the rough part of the market and are in a place where they are able to look ahead and decide how they will get down to business.”
Broadhead says: “Building societies will continue to innovate and I believe mortgage lending levels will continue to increase in the second half of the year.”

However, Your Mortgage Decisions director Dominik Lipnicki says the sector will not be able to make up for the fact the big banks are not lending as much as they used to.

He says: “Building societies, no matter how good they are, will never replace the lending that is lost from the big players. That is the biggest issue at the moment.”