Responsible Lending

Building societies are responsible lenders; it is not in their interest to lend money which cannot be repaid.  Whilst a small number of individuals are experiencing severe financial distress due to high levels of debt, societies ensure that the vast majority of people who have borrowed money from them are fully able to repay their loans.

Building societies have sophisticated systems to work out whether individuals can ‘afford’ their loans. Increasingly, eligibility for mortgage loans is calculated on the basis of what an individual can afford, rather than by using an income multiplier. This means that someone with few financial commitments would be able to borrow more than someone earning a similar salary but who has several dependent children and a number of loans. As a consequence, lending at income multiples above the traditional 3/3.5 times income is not necessarily irresponsible.

Because of this cautious approach to lending, mortgage arrears at building societies are lower than at other mortgage lenders.  The FSA’s Financial Risk Outlook, (January 2007) said
“Overall, credit quality in the building society sector still appears to be relatively good.”

However, sometimes people do find themselves having difficulty paying their mortgage. Building societies recognise that mortgage arrears are often caused by a change in circumstances that the mortgage holder has little influence over, such as redundancy, ill health or relationship breakdown. As such, they are keen to work with people having difficulty paying their mortgage to ensure that they can continue to remain in their home.

If a borrower gets into difficulty they should contact their society, who will help them reschedule their repayments.  The BSA has produced a consumer fact sheet which provides further advice on what people should do if they think they might have difficulties paying their mortgage.  This can be found on the BSA website here.

The five main steps to dealing with repayment difficulties are:-

 1 - Contact your building society as soon as possible to tell them your problems
 2 - Be totally honest with them about your situation
 3 - Work out a repayment plan with your building society
 4 - Keep a close eye on your finances to make sure you are able to keep up with the agreed plan
 5 - If you are having any difficulties keeping to the plan, contact your society again and see if it can be reviewed

Building societies are supporters of free independent debt advice.  Many have donated to their local Citizens Advice Bureau or National Debtline and the Money Advice Trust.