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's proposals, due to take effect next August, could force many
lenders and intermediaries out of the mortgage market.
KPMG's 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.”