Over the past few years, the building society sector has undergone significant change and some were ready to write it off. However, building societies have shown they are more than ready to give the plcs a run for their money, by being innovative in sharing back-office systems, presenting inventive products and delivering consistently better value for their members due to their mutual status.
Building societies are able to compete because they have a long-standing and intimate knowledge of the mortgage market, coupled with a fleetness of foot compared with more cumbersome plcs.
For example, it was Skipton BS which first introduced the concept of base rate tracker mortgages and capped rate mortgages ‘ both of which are the staples of any provider’s portfolio.
More recently it launched the Stateside Mortgage, the first mortgage to link its rate to the US Libor, which has proved very popular.
Staffordshire Building Society launched its Budget Beater mortgage the week after the Chancellor’s statement, while Norwich & Peterborough BS has launched green mortgages in response to the rise of more environmentally-aware consumers.
It is not just the design and pricing of products where building societies are offering more than the high street banks. Britannia BS offers homebuyers cost protection insurance ‘ which protects against gazumping ‘ its conveyancing service offers a fixed price which can be as much as half what a solicitor charges and its removals services not only guarantee a buyer’s chosen moving date but they also send in a cleaner to prepare the house.
Many are sceptical about whether the current churn in the mortgage market will last in the long run. To continue introducing loss-leading products to the market, in order to keep market share while losing customers from your existing book, is not sustainable for many providers.
Nationwide changed its mortgage pricing strategy in March 2001 in order to bring fairer pricing and greater value to its members and to encourage greater fairness in the mortgage market as a whole. While many providers are yet to pick up the gauntlet thrown down by Nationwide, it is a sign that something will have to give.
Lenders will not continue to have the budgets for the headline rates we are seeing at the moment and as customers become more reluctant to move their mortgage every two years, they will be looking for advice as to which institutions are fairer and offer better value in the medium term.
Customers have often moved to a provider offering a loss leader rate only to find that the levels of customer service have slipped as that organisation becomes overwhelmed. One of the ways the market may change is that customers will increasingly be unwilling to swap good customer service for the sake of short-term savings on smaller margins ‘ an area where building societies will do well.
Most customers want a personal service as well as a competitive rate. In large organisations the numbers of layers of middle management between those who ultimately make the decision and those serving customers mean communication is poor and customers’ problems cannot be resolved easily. Building societies take great care to not only listen to their members, but also to their employees who look after those members.
For example, Yorkshire BS has a member relations department which resolves any issues raised by members of the society. Instead of just resolving the individual’s complaint, if there is a problem which could affect other members, they will resolve the issue for all members.
The society has also set up a staff hotline, so if a member of staff is faced with a rule they think is not delivering the service a customer needs, they can call a mobile held by one of the senior management team, who will provide an answer there and then.
This type of attention to detail is not unique to Yorkshire. Building societies are active in their member communications as they are owned by members, not institutional shareholders, and their structure means senior management are close to what is happening throughout the organisation ‘ could you imagine a director at Lloyds or Barclays carrying a mobile phone so that branch staff can contact them direct?
Building societies have also been busy diversifying the product ranges they offer. Dunfermline offers mortgages in conjunction with Mortgages plc, enabling the society to be more responsive to meeting the needs of today’s workforce and offer a range of non-conforming loans.
Societies such as Furness work with brokers like London & Country and Pink Home Loans to distribute its products nationally, and offer customers mortgages from the Pink Home Loans panel.
Facilitating life for customers is also a lesson banks could learn from building societies. People want to access information in an easy way from a trusted source and it is sometimes the small things which can prove time consuming, such as researching local schools if you are moving into a new area, or trying to find a good builder.
Britannia offers a home improvement loan where it also helps the customer find a recommended tradesman and provides a warranty for the work, while Staffordshire has enhanced its website, so home movers can find the map showing the location of and details about schools where they are thinking of buying a house.
Building societies have been keen to establish themselves in developing markets such as customers who have had previous financial difficulties or new build mortgages. Derbyshire has launched the New Horizon mortgage which helps customers who might have found it difficult to find a mortgage due to financial problems. It does not penalise them in the long term for having had problems.
New build is a market which is growing, but borrowers still find it difficult to get the mortgage they need. The Accelerator and Advance mortgages, developed by BuildStore, are offered through a panel which includes Britannia and Skipton. The Accelerator mortgage allows funds to be released in advance of each stage of building instead of in arrears, while the Advance mortgage enables customers to finance the build of their new home, without selling their current home and moving into rented accommodation or a caravan on site.
A cut above
Building societies also remain a competitive force due to the diversity in the sector. Some building societies such as the Nationwide, Skipton and Britannia have built on their core business of savings and loans. For instance, Skipton now has a diversified group of 15 companies, while Britannia has subsidiaries which offer buy-to-let, self-certification and sub-prime products.
This diversification also allows building societies to share back- office systems to develop economies of scale, where necessary. Skipton’s Home Loan Management manages mortgage administration for other societies, while Yorkshire has set up a subsidiary, Yorkshire Key Services, with Hewlett Packard which will allow software to be installed in other societies.
Newcastle and Melton Mowbray have a joint-owned subsidiary which offers the same type of service. Mutual One and Mutual Vision Technologies, both wholly owned by groups of societies, offer collectively purchased back-office systems to their members.
The sector has not been slow in ensuring it is part of the wired world either. It is this area more than any other which has changed the way building societies do business, both in terms of back-office operations and front-end customer service.
While banks struggle with out-of-date platforms and cost challenges which can halt essential investment in new technology, building societies have been investing in the future.
Market Harborough BS was one of the first societies to use the web as a channel and advisers can now view the progress of applications online via a personalised web page. That service has been extended so introducers can also track the progress of their customers.
Building societies are able to compete because they are ready to innovate and react to the changing needs of their members. The sector is already anticipating the role that new technology can play in delivering better customer service. This technology has also been instrumental in allowing societies, when necessary, to share administration and systems offering the economy of scale they need to compete.
The range of products and services offered by building societies means there is something for everyone ‘ from nationally recognised brands to local societies who can respond in niche markets quickly. The sector is in good shape and will continue to challenge the banks in terms of both product innovation and customer service.
Adrian Coles is director general of the Building Societies Association
Building societies are moving into new areas of business, such as sub-prime and new build, in order to meet more customers’ needs.
Building societies can make speedy decisions, meaning they can launch new products quicker than banks.
Services such as online case tracking and extra support when moving house are common offerings from building societies.