The secret of mutuals: Price beats ethics every time
Britain’s building societies are enjoying a boom in new business, as big banks have cut back lending since the financial crisis.
Their local, ethical image is often trumpeted as the reason why – they are owned by their customers, a refreshing contrast from those scandal-hit bankers.
Certainly they are doing something right. This morning three building societies unveiled very healthy results.
The Yorkshire saw net lending rise three-fold in the year, helping it make record profits; the Skipton’s pre-tax profits shot up 52 per cent; and the Leeds’ profits hit a new record high.
But dig into the numbers, and it is not just their squeaky clean image which is helping the mutuals hit new highs – pricing is really the key to the storming success.
The Yorkshire’s mortgage deals led the way with more best buy mentions than any other lender, according to Kantar Media’s Presswatch Financial.
It may seem counterintuitive that relatively small lenders could beat the big boys on price, lacking as they do the economies of scale at the biggest lenders.
But one key factor is the Funding for Lending Scheme. For almost 18 months that gave small lenders access to funding from the Bank of England at the same rock-bottom price as big banks.
The depressed state of the retail savings market has also helped, giving mutuals a cheap source of funding with less need to pay savers large amounts.
And on top of that, the building societies do not have to pay anything to shareholders – not the ethical line which the mutuals enjoy highlighting, but a real hard advantage they can pass on to borrowers.