Everything that I could have written on the prospects for building societies, particularly smaller and medium sized regional societies like Dudley, must now be filtered through the reality of the current Covid-19 crisis.

Being able to predict an accurate picture of the building society sector over the next one to two years can only be speculative at best.

However, if we go back in time to the establishment of the building society movement, the principle of mutual benefit by pooling savings in order to advance funds to build dwellings might have seemed old fashioned in a modern pre-Covid market, with funding raised internationally.

Yet I am reminded that the tried and trusted principles of saving and borrowing through a mutual building society will be likely to provide the most available source of funding when the market recovers and whilst other sources of capital take time to come back on stream.

Savings market

Looking at the housing and savings market at the turn of the year, while the returns for savers were marginal, building societies were offering a better return on average than banks.

According to Savings Champion, more than two thirds (67%) of building society accounts paid a higher rate than the Bank of England base rate (BBR), which at the time was 0.75%, compared to just over half (51%) of banks.

This is, of course, a part of the savings market which has suffered most because of low interest rates, but with the BBR cut now to 0.1%, many savers will already have noticed the increased negative effect.

The main point here is that certainly until the current crisis, although returns are low, immediate access accounts, which make up the bulk of savings accounts, were better served by building societies than other providers. When the market recovers, there is little to suggest that this will change.

Branch presence

A glance at the high street tells us that businesses which fail to evolve will find survival almost impossible.

Before the Covid-19 crisis, high street retailers were already finding it hard to operate profitably and yet there are examples of successful retailers (certainly before lockdown) which have demonstrated that they can buck the trend.

For smaller building societies like ours, maintaining a retail presence is not just a business decision, it is part of the unwritten understanding between us and the people we serve. Of course, we have had to make adjustments and withdraw from some high street premises.

However, while our members require the reassurance of a physical presence through which they can interact to withdraw or invest funds whilst providing a platform which acts as a social as well as a working hub for the community, building societies will maintain their presence on the high street.

We have worked very hard to make our branches more attractive to a wider audience and to align more closely with local charities and organisations around which the community can coalesce, as can be evidenced by our statement of Corporate Social Responsibility.

Since the 2008 credit crunch, regional societies like ours have been reinvigorated by returning to our roots and making the most of that identification with the locality from which we sprang and the people we were originally set up to serve.

Without exception, the last ten years have seen a resurgence in the importance of building societies, both as alternatives to banks for saving and probably more importantly, in this context, as mortgage providers.

Mortgage lending

Post credit crunch, the large high street lenders, having seen the damage caused by lending that had got out of hand, and the regulator’s moves to tighten up capital requirements and lending criteria, opted for a rigid framework for underwriting dominated by credit scoring.

Regional building societies became particularly adept at providing an alternative source of mortgage funding, based around taking the time to fully understand an applicant’s situation and applying a more holistic approach to underwriting cases.

Besides the regrettable loss of life, inevitably there will be casualties among borrowers whose livelihoods have been curtailed and many may struggle for some time. All lenders will have to demonstrate particular understanding and forbearance.

Perhaps this is a good time to remind ourselves that because building societies accumulate reserves over many years and do not pay money out as dividends to shareholders or owner directors and partners, we are better able to navigate the consequences caused by unexpected events like this.

In many respects, the mutual model offers a template which should be re-examined as a potential alternative to shareholder driven businesses, which as we have seen in many cases, do not have the necessary reserves to survive long under less than ideal conditions. The checks and balances that underpin building societies ensure that mutuality represents responsible behaviour in good times and bad.

I am therefore confident that Dudley and our fellow societies will be strongly placed to provide funding when it is needed as we have done through two world wars and countless economic crises.