Should you choose a building society or bank for your mortgage?
Filed under: Mortgages
So it stands to reason that many mortgage borrowers might be put off making the biggest financial commitment of their life with an organisation they don't have much faith in.
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Better with a BSoc?
According to a spokesperson for the Building Societies Association, consumer interest in mutuals has increased following the latest banking scandal. They said: "It is clear from speaking to many of our members that the number of customer enquiries has risen substantially in the past week or so.
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"The rise in consumer interest we are already seeing is up to 30% above normal levels. In addition, some members are already reporting a jump in account openings."
And it's not just enquiries that are rising – the lending figures speak for themselves.
According to the BSA, gross mortgage lending by building societies and other mutual lenders rose 54% to £2.8 billion in May 2012 compared to £1.8 billion May 2011 – before the latest banking scandal.
And in the first five months of 2012 lending rose 40% compared to the same period in 2011.
But is it just a distrust of banks that is driving borrowers towards building societies, or do you really get something different when you take out a mortgage from a mutual lender?
Building societies are effectively owned by their members – take out a mortgage or savings plan and you gain a stake in that building society, and the right to vote at its Annual General Meeting and therefore shape its policies.
But that's not what primarily attracts mortgage borrowers. Let's face it, we all want a good deal, so any lender needs to offer a range of competitive products and great customer service to pull in the punters.
Building societies currently dominate the mortgage best buy tables, with smaller mutuals in particular offering some really competitive deals.
According to independent financial information provider, Moneyfacts, between January and May 2012, mutual lenders made up 78% of mortgage best buys.
One thing building societies do differently to banks is to offer mortgage products exclusively to their local customers. Most building societies now operate nationally but they often have a traditional heartland, where much of their branch network is based.
For example the Cumberland Building Society allows borrowers who are buying a home within its branch operating area in Cumbria to borrow a greater proportion of their property's value than those buying elsewhere. If you live outside the local area you need at least 25% upfront to get a deal, but this drops to 10% for local residents.
It is definitely worth checking out your local building societies to see if they have any deals or offers for those who live nearby.
Building societies also claim to have very high standards of service. After all, they are effectively owned by their members (or customers), and everything they do is for their benefit, not to satisfy shareholders. Fans of mutuality reckon that this fundamental difference in their business model does have an impact on service standards.
Julie Hemmings, spokesperson for Yorkshire Building Society, says: "We believe service is what sets us apart. A mortgage is a big commitment, and not just financially - it's someone buying their home - so our customers deal with the same person throughout the whole process, unlike in some organisations where they can end up having to deal with lots of different people.
"We want our borrowers to feel that they have a relationship with their adviser and with us as a building society. Some people might think that mutuals are old fashioned but we prefer to think of ourselves as providing a traditional way of getting a homeloan, and putting customer service first."
In a recent survey by GfK NOP (January 2012), 69% of customers at mutuals said they were very or extremely satisfied with their mortgage, compared to 57% at other providers.
A flexible approach
According to the Building Societies Association mutuals are also more accommodating when it comes to offering mortgages – particularly for those making their first step onto the housing ladder.
A BSA spokesperson said: "Building societies and other mutual lenders offer a flexible approach to mortgage lending, considering individual circumstances and local conditions, rather than applying a 'computer says no' approach.
"They are particularly first-time buyer-friendly, keen to offer guidance to the 20, 30 or even 40-somethings getting on the housing ladder for the first time. Currently one in every four mortgages at mutuals is made to a first-time buyer."
Of course, the trade body for mutuals would say that, and most banks would also claim to be keen to help aspiring first-time buyers onto the ladder. And regardless of the recent scandals, there are of course banks providing competitive mortgage deals alongside excellent service on a daily basis.
But consumer trust in banks has clearly been shaken, and the mutual sector is benefitting from that (and from the fact that some major banks have admitted to wanting to reduce their market share this year).
Either way, building societies have long offered mortgage borrowers a helping hand onto the property ladder, and hopefully will continue to do so for a long time to come.
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