The Building Societies Report 2025, produced by the Building Societies Association (BSA) in collaboration with Whitecap Consulting, polled mutuals to determine sentiment in the sector.
Representatives of building societies said housing affordability had worsened, with the ratio rising from 4.92 in 2002 to 8.28 in 2022. They said this highlighted a need for more innovative products.
The report said: “Building societies are trying to tackle this by expanding their product ranges. The last five years have seen an increase in products such as high-loan-to-value mortgages and shared ownership schemes.
“Some societies are using partnerships to appeal to a younger audience; for example, Nottingham Building Society has a forward-flow arrangement with Gen H for first-time buyers.”
Mutuals said the market would also become more competitive, “with narrowing margins and new entrants further intensifying pressure”. The report said a lower base rate could intensify this, as mutuals typically competed on rates and criteria, but larger lenders had started to “adopt more aggressive pricing strategies, such as offering higher-loan-to-income (LTI) ratios”.
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It said mutuals could not compete purely on price, so instead were offering niche products.
Relationship with intermediaries is key
The report said building societies had a “high dependency” on mortgage brokers and recognised the value of relationships.
More than 60% of respondents said investment in intermediary-facing digital capabilities was a key focus area in the next five years.
It said mutuals were “increasingly” reliant on brokers for mortgage distribution, “with some even opting to close direct channels in favour of a fully broker-led approach”.
“While technology, such as robo-advice and AI, is being considered as a potential replacement for brokers, consumers still value the advice provided by them as it is a huge financial decision. As a result, brokers are expected to remain a key part of the mortgage process going forward, certainly in the short-to-medium-term future,” the report said.
On the whole, mutuals were found to be positive about the role of technology in mortgages, particularly to automate tasks and reduce manual underwriting. It was also named as an advantage in upgrading the front end to streamline mortgage origination and servicing.
The report said: “While societies are at different stages of integrating technology into their operations, many see it as crucial as they progress into the future. Some view upgrading technology as essential for attracting younger generations, while others see it as a competitive advantage.
“By offering a streamlined, efficient service for mortgages and remortgaging, societies can better meet consumer demands.”
Access to homeownership and transaction issues
Mutuals agreed that there were issues with the home buying process but said a shortage of housing supply was the “primary barrier” to homeownership. They also said inflation, a lack of suitable housing and low occupancy levels resulted in higher house prices and weaker affordability.
Most mutuals agreed that building societies should lead in improving the home buying process, and cited the duplication of checks, lack of upfront property information and a lack of consistency in consumer understanding as the main inefficiencies.
They welcomed the use of technology to improve the process, and the report said: “There is strong momentum towards digital transformation in the home buying sector, with some building societies actively engaging in initiatives or hoping to engage in initiatives in the future that are aiming to simplify and modernise the process.”
Building societies will continue to grow
Robin Fieth, chief executive of the BSA, said: “Digital investment combined with a focus on community continues to be important for our sector as members reassess not just their technology stack but the evolution of systems; in particular, artificial intelligence.
“Societies are continuing to evolve their savings and mortgage propositions to better deliver solutions that provide value and continue to help a broad range of customers navigate their way through the housing market.
“The research from Whitecap highlights the additional burden the sector often faces due to a lack of proportionality in regulation and challenges in accessing capital for growth. With the right support and investment, building societies will continue to grow and provide financial support to savers and borrowers for the next 250 years.”
