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Small mutuals may not survive N3, says KPMG

Smaller mutuals will struggle to survive next year when the costs of

statutory mortgage regulation begin to bite, warns an independent report

into the building society sector.

The report, compiled by auditor KPMG, claims the financial burden of

regulation will hit societies hard on top of rising running costs.

It comes amid rising industry fears that the administrative requirements

of the FSA&#39s proposals, due to take effect next August, could force many

lenders and intermediaries out of the mortgage market.

KPMG&#39s report claims smaller societies are most under threat as many are

not cost-efficient enough to absorb the extra compliance costs they will be

hit with at N3.

While it found the top 19 societies operate at an average cost of just 95p

per £100 of assets managed, the figure for smaller players is much

higher at £1.60.

But even the two most cost-efficient mutuals, Yorkshire and Coventry, with

operating costs of 70p per £100 of assets managed, are still 10 per

cent less efficient than the top mutual 10 years ago, Cheltenham &

Gloucester, which had costs of 62p per £100 managed.

KPMG partner (financial services division) Simon Walker says: “There are a

number of initiatives among smaller lenders designed to help share the

costs of mortgage regulation but there is much to do if they are to

survive, let alone thrive.”

Building Societies Association external affairs manager Jennifer Holloway

says: “Many of these societies have been around over a century, facing many

challenges, and they are still here. There is no reason why the majority of

them will not be around for another 100 years.”

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