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News in digestible form
Welcome to the December edition of our e-newsletter, BSA Newsbite. A monthly online update, Newsbite will give you the latest news, views and stats from the building society sector.
The Winter edition of our quarterly magazine, Society Matters has recently been published and focusses on the people behind the mutuals. If you would like to be added to the mailing list please email the Media Centre
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BSA gives evidence to the Treasury Committee on financial stability
Appearing in front of MPs at the Treasury Committee hearing on financial stability and transparency, Adrian Coles, Director-General of the BSA, said one of the key weaknesses in the handling of the Northern Rock situation back in September, was the communication from the tripartite to the depositors of the stricken bank. It was not clear who was in charge of communicating with depositors and this is something that needs to be resolved in the memoranda of understanding between the three parties. Moreover some of the terminology used by the authorities was not very understandable to the ordinary depositor.
Mr Coles highlighted the differences in how building societies are funded compared to banks. Under the Building Societies Act 1986, building societies can raise only 50% of their funds from the wholesale markets – on average societies raise only 30% by this means, with the remaining 70% coming from retail depositors. Northern Rock bank may not have met with such a ‘sticky end’, he said, if it had retained the building society status it gave up in 1997.
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BSA launch housing affordability report
The lack of flexibility associated with the Government’s affordable housing programmes was identified as the key barrier to greater involvement in the schemes by lenders at the launch of a BSA report on lending for affordable housing by societies - Stepping up to the Mark.
Although societies reported that demand for the products was high, the complexity of the schemes meant that potential purchasers were either put off applying for a mortgage or in many cases found that they were able to use a product from the society’s conventional mortgage range.
The political risk of involvement was also felt to be high, with politicians making regular changes to the ways that the schemes work, while other public sector organisations, such as housing associations, provide a further complication and further increases the complexity of shared ownership applications.
At the breakfast to launch the report the former Housing Minister, Nick Raynsford, commented that the schemes had been introduced to bring simplicity to the market, and it was noted that the complexity of the schemes also serves to confuse applicants.
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Borrowers need to plan carefully
Holders of fixed rate mortgages ending in the new year should start to think about their new mortgage over the Christmas break.
Despite the recent interest rate cut, with the bank base rate in December 2004 being 4.75%, anyone who fixed their mortgage rate three years ago will be facing a significant increase in monthly repayments. Mortgage holders coming off a four year fix (from when base rates were only 3.75%) are going to be facing an even bigger increase.
With the busy festive period coming up, sorting out the mortgage is not going to be top of people’s to do list. But to avoid reverting back to their lenders' standard variable rate and a significant increase in their monthly repayments, now is the time to think ahead.
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And finally ...
If Newsbite has been forwarded to you by a colleague and you would like to get your own copy direct, or if you would like to unsubscribe just e-mail the Media Centre.
For feedback, opinions and information, contact Newsbite’s editor Rachel Le Brocq.
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BSA IN PRINT, MEDIA RELEASE, 20 DECEMBER 2007
“Building societies continued to attract record inflows in November, albeit slightly reduced from the extraordinarily high figures of September and October. Much of these savings are likely to come from further withdrawals from Northern Rock bank. They also reflect the attractive rates of interest on offer at building societies which are encouraging people to save."
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