The mortgage industry has welcomed the proposed reforms to the Building Societies Act 1986.
The Act’s Amendment Bill will have its second reading in the House of Commons tomorrow (19th January). The Bill was introduced in December, and this will be the first opportunity for MPs to debate it.
The reforms will help to put building societies on a level playing field with their banking competitors, enabling them to support more lending to first-time buyers and homeowners in the future.
Building societies play a crucial role in the UK economy, accounting for a quarter of all new mortgage lending in the UK. They direct a greater proportion of lending to first-time buyers than banks. In the first nine months of 2023, over half (55%) of all building society lending for property purchases was to first time buyers – supporting over 70,300 households to buy their first home.
Modernising the current legislation is long overdue. Under the existing Act, member owned building societies are required to raise at least 50% of their funding from members’ savings deposits.
This ‘funding limit’ is an important feature of the building society model, as it preserves their mutual status. However, other types of funding, taken from the financial markets or from the Bank of England, also count toward the funding limit, and constrains building societies from competing more effectively with the UK banks.
Amending the current Act will enable building societies to have more capacity to lend to UK customers, and to access emergency funding from the Bank of England in a time of financial stress, without it impacting their funding limits. This will help to ensure building societies continue to operate safely and securely while also enabling them to help more people to get on the housing ladder.
Robin Fieth, Building Societies Association chief executive, said: “This second reading is an important step for a Bill that will help level the playing field for the UK’s building societies and give them the capacity to lend more into the economy. It’s high time the 1986 Act was updated to reflect the needs of today’s economy. If successful, the Bill will drive greater competition in the mortgage market, which will give mortgage customers more choice, and support a healthy marketplace.”
Andrew Craddock, Darlington Building Society chief executive, added: “Darlington Building Society supports the proposed reforms to the Building Societies Act. The modernisation will cut archaic red tape by removing outdated corporate governance requirements, which building societies face but banks don’t.
“Crucially, as the building society sector directs a greater proportion of lending to first-time buyers than banks, the proposed funding limit amendments will benefit more people looking to get onto the housing ladder. By enabling societies to provide additional mortgage lending, more hard-working people in the North East and across the UK can benefit. Amendments will also support societies to weather future periods of financial stress and help minimise risk in the banking sector.”
Julie Elliott MP, who introduced the Bill, said: “Building societies were founded to help working people own a home of their own and are an essential part of our communities – expanding home ownership, particularly to first-time buyers. I’m proud to be taking forward my Bill and strongly welcome the cross party support I’ve had so far. This is a real opportunity to help more people get on the housing ladder and realise their ambition of owning their own home.”
After the second reading, the Bill will then pass through committee stage and report stage, before third reading in the Commons on Friday 19th April.
