Building Societies Association
Feature
FSA building society statistics 2008
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Contact: Andrew Gall Date: 30 Jun 2009 |
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The FSA has recently published statistics relating to the building society sector’s activity in 2008. These give an indication of the response of building societies last year to the ongoing financial crisis and the deterioration in the wider economic environment.
Funding
Building societies raised £27.2 billion of funding in 2008, compared to £41.9 billion in 2007 when deposits were boosted by inflows from Northern Rock. At the end of 2008, 31.5% of the outstanding stock of building society funding was from wholesale sources. This is a slight increase on the 31.2% at the end of 2007.
Aggregate building society liquidity increased to 21.3% of assets in 2008, from 18.4% of assets in 2007. This is the highest this ratio has been since the end of 2003.
Lending
Building societies made 503,000 loans during 2008, a reduction of 31% on 2007, and the amount lent, at £42.6 billion, was 43% lower than a year earlier. According to the FSA, building societies and their subsidiaries had an 18% share of total net lending in 2008, less than their 20% share in 2007.
The majority of mortgage lending by building societies in 2008 was for remortgaging, which accounted for 54% of lending in Q4 2008, compared to just 35% a year earlier. In contrast, the proportion of lending for house purchase fell from 55% of lending in Q4 2007 to 39% in Q4 2008.
Unsurprisingly, mortgage arrears at building societies and their subsidiaries increased in 2008. At the end of the calendar year, mortgages with arrears equivalent to between 2.5% and 5% of the individual mortgage balance accounted for 0.62% of all mortgage balances, up from the 0.32% of balances at the end of 2007. Mortgages with arrears of 5% or more of the balance made up 0.21% of all mortgage balances, an increase from the 0.13% of balances at the end of 2007.
Balances on mortgages relating to properties in possession increased from 0.07% of all mortgage balances at the end of 2007 to 0.24% by the end of 2008.
Efficiency and Profitability
Net interest margin broadly measures the difference between the interest rates charged by an institution to mortgage borrowers and rates paid out to savers. Therefore, the lower the net interest margin, the less money is retained within the business - generally to customers' advantage, unless the margin gets too small.
Building societies’ average net interest margin reduced in 2008 to 0.99% of mean assets, compared to 1.03% in 2007, and having been as high as 1.26% in 2002. This would indicate that building society customers are getting a better deal.
Losses and provisions increased in 2008 to 0.21% of mean assets from 0.08% a year earlier, partly because of provisions for levies relating to the Financial Services Compensation Scheme.
This was partly offset by the increased efficiency of building society operations in 2008, as measured by the ratio of management expenses to assets. This reduced in 2008 to 0.88% of mean assets, from 0.91% a year earlier.
Overall in 2008 the surplus generated by building societies, which is the profit that is added to their reserves, declined to 0.16% of mean assets, compared to 0.33%, which it had been for the previous three years. Many banks made losses last year. Therefore, these results represent a relatively good performance by building societies given the unprecedented difficult market conditions in 2008.
