View more on these topics

Mutual message is spin over substance

The Halifax has consistently argued that mutuals may have a role to play in the UK but only small mutuals such as credit unions. Bigger mutuals will face increasing pressure to convert.

We have also argued that the assumption that mutuals such as building societies are, by their very nature, better than their plc counterparts is simply not true.

There has been a great deal of “spinning” by building societies over the past few years to the effect that they offer superior products in comparison with plcs. All we are saying is that people should look at the substance rather than the spin.

On closer examination, it is clear that building societies very often do not offer the most competitive products. Indeed, there is a great deal of evidence to show that a large number of them are not as squeaky clean as they may want people to believe.

The facts speak for themselves. On the mortgage side:

Twenty-nine of the UK&#39s 67 building societies charge borrowers penalty interest on their standard variable-rate mortgages if the borrower repays the loan early.

Nearly 60 building societies have higher variable base mortgage rates than Halifax. In addition, very few building societies offer daily interest. Nationwide, the biggest building society, has only been offering this facility for three weeks. Indeed, it was the last major lender to do so.

Twenty seven building societies continue to charge extended redemption penalties.

Fourteen building societies continue to insist on customers taking the society&#39s insurance when buying certain products, a practice denounced in 1999 by Trade & Industry Secretary Stephen Byers.

Twelve societies charge extra interest if customers do not take out the society&#39s own insurance products.

Twenty building societies charge interest to the end of the month when a borrower repays their loan, adding hundreds of pounds to the final bill.

Since the Nationwide announced the restructuring of its new business range, it appears that it has not featured in any national mortgage best-buy tables – a key indication of any product&#39s competitiveness.

In addition, around 25 per cent of all building societies do not offer any fixed or capped-rate products at all. Hardly a case of building societies offering competitive products.

Another assumption that needs to be challenged is the myth that building societies offer better rates to savers. Again, let us look at the facts.

Where should an average saver wanting to put £1,000 in an instant-access account invest their money? Looking at last week&#39s independently produced best-buy tables in the national newspapers provides the evidence.

Of 46 recommendations in the tables, only 12 were for building societies while the other 34 were for banks or new providers.

The arguments for “crystallising” the value of ownership are very strong for building society members. The vast majority of investors in a building society will have balances of less than £1,000.

These savers benefit by no more than £10 a year even if a 0.5 per cent interest rate differential is sustained. Proof, if proof were needed, that the average saver at a building society would be better off financially if their society converted to a plc.

Competition is the name of the game in UK financial services these days. Unfortunately for building societies, they have probably been too focused on spin rather than substance in recent years.

They need to look at the products they offer, particularly mortgages and savings. It would appear they have a great deal of work to do to ensure their customers get good value products across the board.

Recommended

Basic instincts

Selling mortgages through the internet is being viewed in some quarters as a growing threat to the mortgage intermediary&#39s business.The adviser-introduced mortgage sector has proved very resilient to such threats in the past but market share could be vulnerable. Advisers can make their position stron-ger by being sure they are supplying what their potential customers […]

Zurich protection gives LTC a Cic-start

Zurich Life has designed a cafeteria-style protection policy that includes long-term care, life assurance and critical illness cover.There are five levels of cover ranging from standard cover, where the type of cover and premiums stay the same, to select cover term, where the highest level of cover is provided for a set period of up […]

Surpluses and minuses

I recently sold my business after running it for 30 years. When I was a director, I planned for my retirement by making substantial contributions to a pension scheme. My pension adviser now tells me there is a possibility of a surplus arising.Of particular concern to me is the fact that, as I understand it, […]

Swiss Life lauches group risk technical guides

Swiss Life is launching a set of technical guides for IFAs to use when advising clients on group risk products, based on the concept of key features documents.The guides conform to Group Risk Development guidelines, and deal with Swiss life&#39s group life, income protection and critical illness products. The guides are available at www.swisslife.co.uk/tg.Swiss Life […]

Abe and Modi

India: Modi, reform and the oil price fall

Nearly 12 months since sweeping to power, prime minister Narendra Modi has overseen a significant turnaround in India, which is now on track to become one of the most pro-growth, pro-investment economies in Asia. While the market has rallied 48 per cent over the last year in response to Modi’s reform agenda, what is the potential for further progress?

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com