People seek safe haven for cash following Northern Rock crisis

The credit crunch has presented building societies with a "once in a generation" opportunity, the head of a trade body has said.

Iain Cornish, chairman of the Building Societies Association (BSA), said the current turmoil in the mortgage market offered building societies "real opportunities", enabling them to re-establish their difference to banks in the post-conversion era.

He said the mutuals had high levels of consumer trust and had already benefited from strong savings inflows, as people looked for a safe haven for their money in the wake of the problems at Northern Rock.

The value of savings held by building societies increased by a record £16 billion during 2007, nearly double the figure for 2006.

Savings levels have remained high so far this year, with outstanding balances during March increasing by the highest amount on record for that month.

At the same time, building societies' share of the net mortgage market has increased to 25% during the first quarter of the year, compared with 19% during the same period of 2007.

Speaking at the BSA's annual conference, Mr Cornish said: "Circumstances have presented us with a once in a generation opportunity to re-establish our differentiated position in the post-conversion era, so that consumer awareness and perceptions of the sector match what we actually deliver to our members."

Mr Cornish said it was likely to take global and domestic credit markets two years to recover, and even when they did recover, they would be very different to how they were during the first part of the decade.

He said the past 12 months had been a "potent cocktail" of "liquidity issues, confidence issues, regulatory issues, political issues, credit issues and capital issuers". He added that the impact all of these problems would have on the wider economy had not yet been seen, but that this could be the "most decisive phase" for the industry.

But he added that a resilient jobs market and low and falling interest rates should protect the economy from a rerun of the 1990s recession, with a gradual unwinding of some of the imbalances build up during the past five years the more likely scenario.