Building Societies Struggle Owing to Mortgage Market Regulation

The UK mortgage market has been hotting up as the New Year has got underway. However this situation does not apply to all parties offering products in this area of the finance market. Indeed, building societies look to be struggling under the weight of changes made in the Mortgage Market Review (MMR) rules last April. The latest statistics covering this area come from the Confederation of British Industry (CBI) in association with the well-known consultancy firm PricewaterhouseCoopers (PwC). Their Financial Services Survey results cover the last three months of 2014, and they make for interesting reading. Increase in business volumes for nearly two-thirds of those questioned 64% of all the financial services firms questioned said they had experienced an upswing in their business volumes in the three months to December 2014. This was the strongest pace of growth seen since the mid-Nineties. However seven per cent of those questioned said their fortunes had headed in the opposite direction. A different picture for building societies While the figures as a whole are encouraging for the entire financial services sector, the same cannot be said for building societies. Here the statistics showed a very different picture. There were more building societies seeing a fall in business volumes during the final quarter of 2014 when compared to those that had seen improvements in their business. The falls highlighted by the survey were unexpected and were in sharp contrast to the opposite effect seen for the rest of the industry. Regulation is a major concern for UK building societies The Building Societies Association recently ran a survey that pointed to increasing regulation in the industry as one of the top three concerns held by chief executives of the UKs building societies. The Mortgage Market Rules have certainly had a marked effect on the industry as a whole. However these latest statistics seem to indicate that building societies are perhaps suffering more than other financial firms in the industry. The mortgage market in the UK is currently seeing a resurgence with the number of superbly-low deals offered for mortgages of all kinds. Remaining competitive is clearly something all building societies must do. However with falling business volumes it appears to be something that is a clear challenge, and one they are finding hard to meet. Banks are more optimistic about the future than building societies Net optimism for both banks and building societies in September 2014, before this last set of statistics, was roughly the same. Banks were on +6 and building societies were on +5. Both had dipped in terms of optimism levels since June 2014. Now however it is a very different story. December 2014 saw the banks with a net optimism level of +91. In stark contrast the building societies had a negative number of -32. If this pattern continues we could be heading into troubled times as far as the building societies are concerned, particularly if further constraints are placed on the mortgage market.

Published on 19 January 2015

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