The first quarter this year saw building societies lend as much as what they did in the same period last year during the stamp duty tax break.  

In the trade body’s Q1 results, Building Societies Association (BSA) chief executive Robin Fieth described this as a “testament to their presence and competitiveness in a busy market”. 

The BSA is the voice for all 43 UK building societies as well as seven credit unions. Building societies, together with their subsidiaries, hold residential mortgages over £357bn, representing 23% of the total outstanding in the UK. 

Last month, inflation hit double figures reaching 10.1%, setting a fresh 40-year record high.  

Speaking to Mortgage Finance Gazette, BSA head of mortgages and housing policy Paul Broadhead says, looking at the bigger picture of inflation and the cost-of-living crisis, which is driven by energy prices, food inflation and other key prices continuing to rise, there is concern about what the impact is going to be on people’s household bills during the winter months.  

Broadhead suggests that another factor is the increase in the number of people working from home now compared to previous years, which will also increase the use of energy within the home. 

“Building societies will need to monitor the impacts that this could have on households, but it will certainly increase affordability and it’s also going to feed through to those that already have mortgages and will potentially struggle to pay for them,” he comments.  

Consumer Duty 

Regulatory requirements are never far from the top of the priority list for building societies but right now, taking centre stage is the Financial Conduct Authority’s (FCA) recently published Consumer Duty rules.  

The new rules demand the incorporation of a new consumer principle, which asks firms to provide good outcomes for retail customers, details cross-cutting rules, which consist of expectations for behaviour across three common themes and provides rules relating to four outcomes the FCA expects to be delivered. 

Alongside publishing the long-awaited rules, the FCA also extended the deadline for implementation from 30 April 2023 to 31 July 2023, giving those required to implement changes a whole 12 months to do so.  

Welcoming the extension, BSA’s Broadhead says: “The Consumer Duty rules are probably the biggest change that we have faced in recent years.” 

“We can question whether the rules were needed or not, but regardless we are looking at supporting our members with the implementation.” 

Broadhead explains that building societies have always been “focused on delivering good consumer outcomes, it just means building societies might need to deliver those good consumer outcomes with a slightly different operational approach, and document how it has been done”.  

He suggests that the new rules reflect the way the FCA has changed in recent years and the way it supervises the sector.  

“There is a lot of work to be done, not least just for mortgage lenders, but also for mortgage brokers as well.” 

Broadhead says getting the relationship between lenders and brokers right is important so there isn’t a duplication of information. 

“As a trade association, providing support to our members and the broker community to keep that as a slicker process as possible is really important for us. It is a big undertaking, it needs to be done properly and it needs to deliver its objectives,” he adds.  

Net zero targets 

“While there are green mortgages out there, there are still relatively few people that are coming forward to carry out green energy improvements”

Alongside the implementation of the new Consumer Duty rules, building societies also need to turn their focus on what they are doing to set and reach net zero targets.  

To help and support building societies work towards the net zero transition, the BSA set up a member-led Green Finance Institute (GFI), which is chaired by Hinckley and Rugby Building Society chief executive Colin Fyfe. 

Broadhead explains: “What we found from this is while there are green mortgages out there, there are still relatively few people that are coming forward to carry out green energy improvements on homes.” 

So far, there has been little take up on the available green mortgages, which Broadhead says, “is partly down to some people not understanding what solutions work for their kind of property or they don’t understand if they carried out some of these improvements, what the payback period would be”. 

To tackle this, the BSA alongside the GFI is producing a guide for brokers, lenders and consumers to publish “one version of the truth” about the type of property, the measures that can be taken to make the home more energy efficient, where you can source a trusted supplier and how you can get the finance. 

“We are on a journey now to educate lenders, brokers and consumers with the same version of the truth rather than a lot of different guides and different information that will confuse people,” Broadhead explains.  

Housing crisis 

Earlier this year, former secretary of state of levelling up, housing and communities Michael Gove said since the record high of 244,000 housing completions pre-pandemic there has since been “a number of economic headwinds which will make life more difficult” to reach the target of 300,000. 

Broadhead explains that addressing the housing crisis is still on the association’s agenda. “We have underbuilt for decades, which is why we are seeing the challenges around affordability because we don’t have enough homes of the right type.” 

“Every single party, in every election, puts housing at the top of their agenda and then they produce a five-year plan that delivers absolutely nothing. This is bigger than anything, and it is about the security and safety of people, making it really important.” 

He says the biggest challenge for the incoming prime minister and cabinet will be around housing. 

“Theresa May published a report when she was prime minister called ‘Fixing our broken housing market’. Since then, it has not got any better, if anything it has become worse in terms of appropriate accommodation for people than it was previously.” 

“The current prime minister Boris Johnson announced that his government were going to conduct a review of the mortgage market – not to be confused with the mortgage market review – that would exclude regulation. If the incoming prime minister is still keen to do it, we are happy to collaborate with them to help first-time buyers to get on the property ladder.” 

“Alternatively, if the government has other ideas, we would be really pleased to listen to them. Overall, we just need this housing strategy to start delivering for people. This isn’t just home ownership, it’s across the board.” 

“We have underbuilt for decades, which is why we are seeing the challenges around affordability”

Broadhead suggests that no matter what political party is leading the country, there needs to be a house-building programme in place.  

“The difference between political parties is that some will focus on social housing, others will focus on owner occupation and others will talk about tenant and rental reform, all of which are very important but are pointless if we don’t have enough homes.”  

“Even if political parties agree that they will set a target to build collectively a set number of homes of this type in the necessary locations over a 15-year period, you can argue about the tenure later, we just need to get them built and we can start housing people appropriately,” he adds.  

Technology investment 

Investing in new technology means different things to different people, and it spans wider than just changing core mortgage systems. 

Building societies – and the wider mortgage sector – have a good reputation for giving people the opportunity to deal with consumers face-to-face or by telephone.  

BSA’s Broadhead explains that going forward, “the customer-centric building society approach still needs to remain, but it will be about how you deal with that through the different channels that the next generation of borrowers is going to require”. 

He comments: “Some of that will be data collection and open banking, it will also include developing apps to enable people to upload data directly. What we really need to be careful about is that the drive of technology doesn’t take away the advice that people really need.” 

“There are a lot of people coming to the mortgage market for the first time that are digital natives and there’s a temptation to say that because they understand technology, they can do it themselves, but it’s important they still get the right advice.” 

“The next generation might be confident on the digital platforms, but they need someone to step them through the biggest transaction of their lives. The most important thing is making sure building societies maintain the customer focus.” 

Broadhead also highlights that any technology investment within building societies needs to be in line with the intermediary market because that’s where 95% of its business comes from. 

“The intermediary market is a powerful and important distribution channel. Lenders can’t do this in isolation, it must work with those distribution partners to make sure they get it right.” 

“Technology investment has to deliver value otherwise you can make a pretty expensive mistake by choosing the wrong cause to back for the wrong purpose,” he adds.  

The future focus  

While building societies will be busy with multiple tasks over the next 12 months, Broadhead notes that it is important they continue doing what they always do well “which is delivering the strategy for both savers and borrowers and sticking to what they’re good at”.  

He highlights that it is important for building societies to keep the focus on people.  

“When I say people, I mean staff. One thing that building societies consistently get back from customers is that when they walk into a building society branch compared to a bank branch, it’s a lot more personal.” 

“The focus also needs to be on members to ensure they are being serviced to a high standard. With technological changes and the rise of new challenges such as the fallout from the pandemic and Brexit, building societies need to make sure that they are fleet of foot to support members’ needs.” 

“The focus also needs to be on communities because that is really important for the sector,” he adds.  

With the cost-of-living crisis continuing, Broadhead says it’s important for building societies to be “sensitive and responsive” to people that are in difficulty. 

“We always say that if you are in payment difficulty or think you might be, speak to your lender. People are often concerned about putting their hand up because they think it might start the possession progress, but it doesn’t,” he explains. 

Finally, Broadhead says building societies should “pay close attention to the needs and expectations of the regulators, particularly as the FCA changes its approach going forward”.