This year marks the 250th anniversary of the formation of the first building society, and as the sector reflects on this achievement, it’s also a good opportunity to think about the role building societies continue to play in today’s mortgage market.
The Building Societies Association (BSA) has been celebrating this milestone, and as part of that, has been exploring the history of the sector. The origins of building societies, as we know them today, trace back to when a group of ordinary working people came together and pooled their savings to buy land and build their homes.
A lot’s changed in the mutual sector since 1775, but in many ways, a lot is the same. Two and a half centuries later, there are 42 building societies, all mutually owned – still looking after people’s savings and using them to help others make their homeownership dreams a reality.
Building societies have always put their members first and had a strong presence in their local communities. But we’re not just local institutions anymore, focused on lending in our own areas. Now, we’re helping aspiring and existing homeowners all over the country.
In today’s mortgage market, some building societies have firmly established themselves in the complex lending sector.
While this may seem like a departure from our traditional roots, it’s really just an extension of our mission to help borrowers achieve homeownership - especially those who might struggle to find support elsewhere in the mortgage market.
Even as we celebrate our 250th year, building societies are continuing to find new and innovative ways to meet the evolving needs of mortgage borrowers.
More than local lenders
So, what role do building societies play in the mortgage market today?
As mentioned, a number of building societies focus on complex lending, and there are some similarities that can be drawn from those early days of mutuals. Take joint borrower, sole proprietor (JBSP) mortgages, for example. For brokers who are unfamiliar with this type of mortgage, it allows for multiple income sources - including second jobs - from up to four applicants to be taken into consideration on the mortgage application. Applicants don’t necessarily have to be family members. As long as the relationship is plausible, we’ll consider it, with just the sole proprietor registered as the owner of the property.
Whilst the responsibilities are shared by all the borrowers, in the right circumstances, JBSP can make homeownership possible for more customers.
When you think about it, you can see some similarities between this and how people came together 250 years ago, pooling their resources to help others get a foot on the property ladder.
A JBSP mortgage can be particularly helpful for borrowers facing affordability challenges, and I think we’ll continue to see interest in it going forward.
Another area where building societies are making an impact is with older borrowers. For example, we have no upper age limit and accept 100% of UK pensions - including state, private, and employed pensions. We’ll also consider self-invested personal pensions (SIPPs) and 100% of one foreign pension.
In the right circumstances, these can be helpful for retirees or those nearing retirement, who may rely on pensions as their main income, including expats living overseas.
For expats who are still in employment, we also don’t apply a ‘haircut’ to their foreign income, as some other lenders might. This means that if a borrower is earning in another country, we’ll accept 100% of that income, and that includes self-employed applicants too.
The focus that a number of building societies have on the expat market shows just how far we’ve come from originally lending only in our local communities to now supporting borrowers abroad as well.
A personal approach
Over the past 250 years, building societies have always aimed to offer a personal approach, whether to local customers in branch or mortgage borrowers further afield.
The approach many building societies offer means we can get to know our customers and their circumstances in a way that larger lenders might not be able to do.
We assess affordability on a case-by-case basis, which may allow us to consider more unique circumstances.
The personal approach adopted by many building societies means we may be able to consider factors that other lenders might not when assessing affordability. For example, we can take net or retained profits from a limited company into account, or use income from other sources like an annex or Airbnb, as long as these are supported by the borrower’s SA302.
A number of building societies also strive to help those who might be experiencing financial challenges but are still able to pass the affordability assessment. For example, we can consider people with only benefit income or foster income.
The mutual sector has always been about people helping people, and that’s something we’re still seeing today - 250 years on.
