BUILDING SOCIETIES  A-Z MORTGAGE FINDER

Money makes the world go around

 

 

 

Where mortgages may come from a bank just as easily as a building society, there is some confusion as to the differences between these institutions.

 

SUMMARY OF DIFFERENCES BETWEEN BANKS and BUILDING SOCIETIES

 

Banks are normally companies listed on the stock market and are therefore owned by, and run for, their shareholders.

 

As a result of not having to pay dividends to shareholders, building societies claim that they have historically offered higher rates of interest to savers and cheaper mortgages.

 

Building societies were set up as mutual institutions, which means that those with accounts become members and have certain rights to vote on issues affecting the society. Each member has one vote regardless of the amount they have saved or borrowed.

 

Traditionally they would only lend within their catchment area, but local societies have become more flexible to appeal to those who wish to save or borrow from them.

 

When it comes to choosing a building society there is no need to just look at those in your area, many will lend or accept deposits from those outside and also offer such services as postal, telephone and internet accounts.

 

 

WHEN THE SYSTEM MERGED

 

There has been monumental change in the market over the past decade and now, as far as savers are concerned, there is very little practical difference between banks and building societies.

 

Many building societies have thrown off their mutual status, offering their members shares or a lump sum bonus in return.  The process of building societies morphing into banks is called de-mutualisation.

 

Some groups of building society savers have been trying to get these traditional institutions to turn into banks in the hope of securing a windfall.  Some commentators have suggested that the days of building societies are numbered and that they will all have de-mutualised within a few years.

 

Competition means that banks now offer deals that can equal or beat what is on offer from building societies. Likewise, traditionally banks would offer current accounts, but these days most building societies offer them as well.

 

Many savings accounts can be opened through organisations such as retailers and large supermarkets as well, though in fact these are usually offered in partnership with a bank or building society.  However, building societies such as the Nationwide are holding their own on the High Street, suggesting that the days of the mutual are not numbered.

 

 

 

The following is a selection of United Kingdom Building Society websites to assist borrowers: 

 

 

A-Z of Mortgage Lenders -

 

Abbey National
www.abbeynational.co.uk

Alliance & Leicester
www.alliance-leicester.co.uk

Barclays Bank
www.personal.barclays.co.uk

Barnsley Building Society
www.barnsley-bs.co.uk

Bath Building Society
www.bibs.co.uk

Beverley Building Society
www.beverleybs.co.uk

Bank of Scotland
www.bankofscotland.co.uk

Birmingham Midshires
www.birmingham-midshires.co.uk

Bradford & Bingley
www.bradford-bingley.co.uk

Bristol & West
www.bristol-west.co.uk

Britannia Building Society
www.britannia.co.uk

Britannic Money
www.britannicmoney.com

Britannic Money
www.britannicmoney.com

 

Buckinghamshire Building Society
www.bucksbuildingsociety.com

 

Catholic Building Society
www.catholicbs.co.uk
 
Chelsea Building Society
www.thechelsea.co.uk

Cheltenham & Gloucester
www.cheltglos.co.uk

Chesham Building Society
www.cheshambsoc.co.uk

Cheshire Building Society
www.thecheshire.co.uk

Clay Cross Building Society
www.derbyshire.org/clay-cross/mortgage.htm

Clydesdale Bank
www.clydesdalebank.co.uk

Coventry Building Society
www.coventrybuildingsociety.co.uk

Darlington Building Society
www.darlington.co.uk


Derbyshire Building Society
www.thederbyshire.co.uk

Direct Line
www.directline.com

 

Dudley Building Society
www.dudleybuildingsociety.co.uk

Dunfermline Building Society
www.dunfermline-bs.co.uk

 

Egg
www.egg.com

First Direct
www.firstdirect.com

First National Mortgage Company
www.fnmc.co.uk

Furness Building Society
www.furnessbs.co.uk

Hanley Economic Building Society

www.thehanley.co.uk

Harpenden Building Society

www.harpenden-bs.co.uk

Hinckley & Rugby Building Society
www.hrbs.co.uk

Holmesdale Building Society
www.holmesdale.org.uk

HSBC
www.banking.hsbc.co.uk

igroup
www.igrp.co.uk 

Intelligent Finance
www.if.com

Ipswich Building Society
www.ipswich-bs.co.uk

 

Kensington Mortgage Company
www.kmc.co.uk

Kent Reliance Building Society
www.krbs.co.uk

Lambeth Building Society
www.lambeth.co.uk

Leeds & Holbeck Building Society
www.leeds-holbeck.co.uk

Leek United Building Society
www.leekunited.co.uk

Legal & General
www.landg.co.uk

Loughborough Building Society
www.theloughborough.co.uk

Manchester Building Society
www.themanchester.co.uk

Mansfield Building Society
www.mansfieldbs.co.uk

Market Harborough Building Society
www.mhbs.co.uk/mortgages.html

Marsden Building Society
www.marsdenbs.co.uk

Melton Mowbray
www.mmbs.co.uk

Mercantile Building Society
www.mercantile-bs.co.uk

 

Money Sorter

www.moneysorter.co.uk

Mortgage Express
www.mortgage-express.co.uk

National Counties Building Society
www.ncbs.co.uk

Nationwide Building Society
www.nationwide.co.uk/mortgage

NatWest Mortgage Services
www.natwest.com

Newbury Building Society
www.newbury.co.uk

Northern Bank
www.nbonline.co.uk

Northern Rock
www.northernrock.co.uk

Norwich and Peterborough Building Society
www.npbs.co.uk

Nottingham Building Society
www.thenottingham.com

 

Paragon Mortgages
www.paragon-mortgages.co.uk

Penrith Building Society
www.penrithbuildingsociety.co.uk

Portman Building Society
www.portman.co.uk

Principality Building Society
www.principality.co.uk

Prudential
www.pru.co.uk

Royal Bank of Scotland
www.rbs.co.uk

Saffron Walden Herts & Essex BS
www.swhebs.co.uk

Sainsbury's Bank
www.sainsburysbank.co.uk

Scarborough Building Society
www.scarboroughbs.co.uk

Scottish Building Society
www.scottishbldgsoc.co.uk

Scottish Widows Bank
www.scottishwidows.co.uk

Skipton Building Society
www.skipton.co.uk

Stafford Railway Building Society
www.srbs.co.uk

Standard Life Bank
www.standardlifebank.com  

Stroud & Swindon Building Society
www.stroudandswindon.co.uk

Sun Bank
www.sunbank.co.uk

Tipton & Coseley Building Society
www.tipton-coseley.co.uk

UCB Home Loans
www.ucbhomeloans.co.uk

Universal Building Society
www.theuniversal.co.uk

Virgin
www.oneaccount.com

Wesleyan Homeloans
www.wesleyan.co.uk

West Bromwich Building Society
www.westbrom.co.uk

The Woolwich
www.thewoolwich.co.uk

Yorkshire Bank
www.ybonline.co.uk

Yorkshire Building Society
www.ybs.co.uk

 

 

 

 

 


This material and any views expressed herein are provided for information purposes only and should not be construed in any way as an endorsement or inducement to invest in any specific program. Before investing in any program, you must obtain, read and examine thoroughly its disclosure document or offering memorandum.

 

 

 

A to Z TYPES OF UK MORTGAGE

 

B

 

BASE RATE TRACKER MORTGAGE

 

Simply put this mortgage tracks the Bank of England base rate and applies it to you at an agreed rate.

 

So you might have a Base Rate Tracker Mortgage which sets your mortgage at 1% above the base rate for, say, the first two years.

 

 

BRIDGING LOANS

 

A bridging loan is one where you need to borrow a sum of money for a short period to cover a temporary shortfall as may occur when buying a property, business, or carrying out improvements or renovations.

 

This is quite normal where you may need to buy another property, but have not yet sold your home. Another example is when buying at auction.

 

They are more expensive, since they are more risky for the lender. Typical loans last for less than 6 months.

 

Bridging Loan are given to self employed or people with poor credit history, where otherwise these customers may find it more difficult to obtain loans or mortgages.

 

When buying a property, a Bridging Loan is usually secured by taking a mortgage on the new property in combination with a second mortgage on the property to be sold. 

 

Loan of up to 65% of the value of the two properties can be obtained, and this will depend on the valuations of the properties concerned, usually between £25,000 to £500,000 in the normal course of business.


BUY TO LET FINANCE

Mortgage providers' traditionally only offered loans for people buying homes. An increasing number are offering loans for a property you want to "buy to let", (ie not to live in as your home, but to rent/let out to tenants).

 

Getting income from the rent is seen as a good investment by some and is becoming more commonplace.

 

It's particularly popular for retirement planning because of the growing concerns about the inadequacies of traditional pensions. The old saying "There's nothing more solid than bricks and mortar" is more relevant than ever.

 

If you're interested in renting to students in a university town or to commuters in suburbia, the Council of Mortgage Lenders has two leaflets 'Buying to Let' and 'Thinking of Buying a Residential Property to Let' You can order them by phone on 020 7440 2255.

 

The fears over the past couple of years that the market was overheated seem to have been incorrect. However make sure that your buy to let property is in an area which is likely to have a demand.

 

There is a wealth of information on buying property to let. Just make sure if you're paying for it that it's been written by someone with direct experience in the field.

 

 

B

 

CASHBACK DEALS

These deals vary but, as the name suggests, you get cash - in addition to the money you're going to be borrowing. You may use it to pay for moving costs and furniture etc.

 

Cashback deals are perhaps best seen as a sales technique to get you to take out a mortgage with a particular lender.

 

It's very rarely a genuine gift and is probably used to tie you in to the mortgage lender - who will eventually more than make their money back.

 

If you need cash it may be an idea to shop around to look for better deals from your bank, credit card etc. (Best not try the local loan shark though).

 

 

CAPPED RATE

This is an interest repayment variation.

 

Capped rate mortgages are supposed to offer the best of both variable and fixed rate deals.

 

You agree to have a limit - a cap - on the maximum amount of interest you will pay over a particular period of time while allowing it to fall if the variable rate drops.

 

Good points: You get the best of both worlds. If the variable rate goes higher than your agreed capped rate then you're only paying up to the agreed capped rate.

Whereas if it falls below your capped rate then you pay less as well.

 

So you benefit from falling interest rates but are protected from rate rises. You know the max you'll be paying.

Bad points: There's only a limited number of these deals on the market and they're not thought to be very competitive because the interest rate you'll be paying is going to be higher than your average fixed or discounted rate mortgage.

You pay to get the best of both worlds.

 

Also there'll probably be an admin charge by the mortgage lender of £95 to £200 - though this may not be much compared to the amount you might have paid if your mortgage wasn't capped and interest rates went up.

 

However some mortgage lenders are now offering good deals which may even be cheaper than fixed rates.



COMBINED MORTGAGE and CURRENT ACCOUNT or Offset Mortgage

 

 

This is a relatively new type of product which goes further than the usual flexible mortgage.

 

Your mortgage account effectively becomes your bank account. You get a chequebook, direct debit facility, credit & cash card and regular statements etc. Your earnings are paid straight into this "mortgage/bank account".

 

This means that effectively you pay less interest on your mortgage - because your earnings are being used to "pay back" the loan.

 

Because the interest is calculated daily any changes in your balance, no matter how short the period, will change your interest payments.

 

You also avoid paying the tax, which you would have been liable for if you were putting your earnings into an interest /bank account because, technically, you are not earning interest.

 

You are unlikely to be charged for arranging the mortgage, or for any redemption penalties or compulsory insurance.

 

There is a definite financial advantage to this idea, in theory saving you thousands over the mortgage term.

 

The general criticism of Combined Mortgage and current accounts is that they don't give you a natural "speed limit" to your spending (i.e. you never seem to run out of money).

 

Most of us aren't great money managers. And the problem is if you mess up with this type of account you really mess up big time.

 

It's perhaps too easy to borrow too much from the account - for a holiday etc. - and before you know it your debt could have doubled.

 

Are you disciplined enough to be able to look carefully at what's happening with your account and to keep up regular repayments. You could easily be lulled into a false sense of security and overspend bit by bit till your debt is so big you've had it.

 

If you're interested in this type of mortgage, there are now various ones on offer. The best way to find one is to get a mortgage adviser to help you.


DISCOUNTED VARIABLE RATES

 

This is an interest repayment variation. To tempt new customers most lenders will offer a new borrower a discount on their standard variable rate, for a set period.

Your payments will go up and down, as with a standard variable mortgage, but you're paying less.

 

After the agreed set period the interest rate will switch into the mortgage lender's usual variable rate.

 

So it may be worth checking what their track record has been for their variable rate charge because, if they're pricier than most, they're unlikely to have changed and you may end up as one of the mugs paying over the odds.

 

The rate for new borrowers is usually lower than for existing customers. So try to shake off that customer inertia and change mortgage lenders every couple of years - having checked, of course, that there's no penalty for leaving.

The penalties for changing to another mortgage lender may last longer than the agreed discount term. But they're usually less than for a fixed rate period.

Good points: You're paying less.

 

Bad points: You're locked in for the agreed term so if the interest base rate goes up you're stuck. However when the period ends, you can swan along to the next best discount rate.

 

The shorter the term the better. You probably don't want to tie yourself down for longer than 2 years.

 

 

EQUITY RELEASE MORTGAGES

 

Already a Homeowner? Want to Release Some Equity?

 

If you are already a homeowner - with or without a mortgage - then you might want to release some equity from your home to give you a cash lump sum.

 

This means that if you have paid off a significant amount of your mortgage and/or property prices have risen, you can benefit from some of the "profit" that is locked into your house without having to sell your home.

 

Lenders provide a variety of packages for doing this, but they are generally described as "equity release" mortgages.

 

Typically you will be able to borrow up to 95% of the equity in your home, given to you in a lump sum which you then pay back like a normal mortgage. This can be used to pay for home improvements, lifestyle changes, home repairs – almost anything, really.

 

WARNING Be very careful when doing an equity release mortgage. For some reason they are not regulated by the Government. Many experts are worried about this new trend and there are concerns it could become yet another personal finance scandal.

 

Watch out for the following

  • Make sure that your proposed equity release plan has a negative equity guarantee. This means that should the value of your property decrease then the debt will also decrease proportionally.

  • Make sure that you can keep full ownership of your home until your death.

  • Make sure that you are allowed to move home after taking out an equity release plan.

  • If you are living “in sin” with a partner, Make sure that you take out a joint plan that makes the debt reclaimable only after the death of the last surviving partner.

  • Make sure that any outstanding debt after the sale of your property will not be passed on to your relatives.

  • Watch out for the extra charges involved, like legal fees, the property survey and setting up fees or other admin charges

 

ENDOWMENT MORTGAGES

 

These are basically a mix of savings, investments and life assurance "wrapped up" into an insurance policy. Got that?

 

Well don't waste too much time trying to. They were very popular in the 80s and 90s but, they've resulted in a lot of trouble because the "side" or "by product" investments have done worse than expected and people are looking at a "shortfall" in paying back the mortgage lender.

 

(In other words the property will not be theirs because they won't have paid off the loan).

It looks as if millions will be badly affected. Accordingly we don't feel it's appropriate to tempt you by going into details of how they work.

 

If you want to see if you can claim that you were mis-sold an endowment policy call the Financial Services Authority. (Tel. 0845 606 1234).

 

Getting rid of your Endowment

 

If you already have an endowment and want to get rid of it you can "sell" it. This could be to the company that sold it to you originally. However you might make more by selling it on the open market. There are a lot of firms who will do this for you.

We can put you in touch with a reputable one we know who will be able to "trawl" the open market and get you the best price. Further info

 

MORTGAGES for  UK EXPATRIATES WORKING OVERSEAS

 

If you are working overseas and want to buy a property in the UK you will probably find that many mortgage lenders won't want to know.

 

The problem is that the mortgage lender needs security on their loans and if you're thousands of miles away they'll be more nervous about this. For example it will be harder to chase you if you start defaulting on the repayments.

 

If you need this type of mortgage they are possible to get but you really need a specialist mortgage broker to check the market for you and give you some quotes.

 

If you want to buy a property overseas, some mortgage lenders will have products aimed specifically at you. These will come and go depending on the marketing cycle, so we can't recommend one in particular.

 

If you want to find one the best thing is to apply to a mortgage broker and ask them to source the latest overseas mortgage packages for UK citizens working overseas.



FIXED RATE MORTGAGES

 

This type of mortgage is where you and the mortgage lender agree to fix the interest rate owed on your loan for a set period of time.

 

The period of time is usually between 1 and 5 years but could be longer. (That simply depends on the exact mortgage deal you choose).

 

After the agreed period, the interest rate owed on your loan usually reverts to the lender's Variable Rate.

 

Good Points: You know exactly what you'll owe. No surprises.

 

Bad points: If interest rates drop you may be paying more than you might have done if you'd gone for the Variable Rate. But interest rates might rise... At least you're not gambling with your home.

 

If you want to leave before the agreed term the early redemption penalty is usually significant. For example you may be charged six months gross interest if you leave a five-year fixed rate agreement.

 

Some penalties could even go beyond the fixed-rate period. This would be an "overhanging redemption penalty". Always read the small print and ask as many "stupid questions" as you feel like. You must be clear on what everything means.

 


FLEXIBLE MORTGAGES

 

The details will vary but basically this type of mortgage allows you to be flexible according to your future circumstances/ needs without having to pay a penalty.

So if you need to pay less due to unemployment or whatever, you can take a "payment holiday".

 

Or, if you win the lottery, you can pay more than usual - ie saving on interest payments in the long run.

 

(Traditional mortgages would penalise you for not sticking rigidly to the agreed repayments).


A truly flexible mortgage allows the following without penalty:

  • You can make over and under payments

  • You can have payment holidays

  • You can borrow back on payments already made

  • They should also calculate interest daily

Quite a few High Street mortgage lenders offer these but some are more flexible than others.

When you're comparing them make sure there isn't a minimum amount you have to pay or a limit to the number of any over/under payments.

 

Most people simply want a loan which allows them to "over pay" their repayment without penalty. It is this aspect of flexible loans where the greatest savings can be made because the quicker you pay off your loan the less interest you'll have to pay.

 

(It's been estimated that over paying on a loan with an interest rate of 7.74 per cent by £100 a month over 25 years will save you £41,000 in interest payments).

 

 

INTEREST ONLY MORTGAGES

 

This is an arrangement where you're only paying off the interest on the loan.

Unlike a standard mortgage you are not paying off the capital debt part of the mortgage.

 

So the mortgage costs you less... which means you can borrow more.

But this idea that you can pay less is only a short term solution because you are supposed to set up a side by side investment because the capital debt part is supposed to have been repaid by the end of the mortgage term by your having made simultaneous monthly payments into a separate investment fund.

 

The idea is that this fund has hopefully grown enough to pay off the capital and leave you with a surplus.

 

To do this your mortgage salesperson may offer you an investment "side" or "by product" (i.e. what they'll claim is a suitable type of investment to pay off the capital part of the mortgage).

 

Before accepting anything always shop around for other deals. You may have heard of the endowment mortgage scandal where tens of thousands of people were left with a shortfall. That was a type of interest mortgage.

 

In our view you'd be best off consulting an IFA. Make sure that s/he specialises in investments.

 

The majority of mortgage providers no longer ask for proof of an investment side/by product when confirming your mortgage.

 

You should be very clear that if the investment is not a success then you could lose your home - probably at the end of the mortgage term ie when you're close to retiring.




THE ISA MORTGAGE

 

The ISA mortgage is a relatively new type of interest only mortgage. The article below should tell you why it may not be the greatest bet for you.

 

Out of the frying pan, into an ISA

 

Patrick Collinson issues a warning on the hidden pitfalls that come with a new range of offers (Guardian)

 

"The endowment mortgage is dead, long live the ISA. That appears to be the refrain from big lenders such as Abbey National and Halifax, which have recently piled into ISA mortgages. But are ISA mortgages likely to be a better bet than controversy-ridden endowments?"

 

 



MORTGAGES IN PRINCIPLE

 

Getting a mortgage and buying a house are usually very much intertwined.

When you find a house, you'll probably have to move fast to secure it. To prevent being delayed while sorting out a mortgage you could first get a "mortgage in principle".

 

Having one means you should be able get the actual mortgage quicker when the race to buy your chosen home begins.

 

A mortgage in principle is a conditional offer made by a mortgage lender that - provided the information you give them is correct - they will "in principle" give you the loan you have discussed with them.

Knowing what you can afford will also help you narrow your search.

 

It's very useful to have one before you even start looking for a house to give you the edge over any competition.

You can get this offer in writing to show to Estate Agents and sellers who will see you as a serious prospect and not a timewaster who's interested, for example, in looking around peoples' homes for a laugh.

 

To get a mortgage in principle you have to go through the same motions as an actual mortgage. That is: Consider what type of mortgage do you want and then find a mortgage lender you feel can offer you the best deal.

 

You should be able to get mortgages in principle offered over the phone. It's only when applying for the actual mortgage that the mortgage lender will want to see the proof of your income etc.

 


PENSION MORTGAGES

 

Don't bother with these. When we asked about them our experts suggested we think of the words "barge pole" and "don't touch with".

 

 

 

REPAYMENT MORTGAGES - CAPITAL and REPAYMENT

 

This is the old fashioned, traditional type of mortgage and remains the only way the property is actually guaranteed to be yours at the end of the mortgage term - provided you have repaid the loan.

 

Your mortgage debt is divided into capital repayments (ie repayment of the money you borrowed) and interest payments (ie repayment of the interest you're being charged for the loan).

 

As you pay off your mortgage every month you're paying off a bit of capital and a bit of interest until the full debt is repaid.

 

You usually pay off mostly interest in the early years and then gradually more of the capital debt. It may seem as if this is costing more but that's because unlike the other types of mortgages you're paying off the capital and not just the interest.



STANDARD VARIABLE INTEREST RATE MORTGAGES


Here's how these type of mortgages work.

 

The Bank of England sets a base rate. This is the basic interest rate - which is that bit on the news you've probably ignored for years when they get all excited about interest rates going up or down.

 

The mortgage lender's interest rate is set higher than the base rate - say 1 or 2% above it.

 

So if the base rate is 5% and your mortgage lender is charging you 2% above the base rate, you'll be paying 7% interest.

 

Now the Bank of England can change the base rate at any time. So if they raise it by 1.5% overnight the base rate is now 6.5%.

 

So your mortgage is now 8.5% i.e. still 2% above the base rate.

 

Your mortgage is variable because it goes up and down ie as the base rate varies

 

Each of the mortgage lenders have their own variable interest rate. They vary a great deal offering as much difference as 1%. It may not sound much but on a £100,000 loan that's £1000 per year.

 

Good Points: You might get lucky and see the interest rate drop.

 

Bad points: Errm. You might be unlucky and see the interest rate rise.

 


100% MORTGAGES

 

A 100% mortgage is where the mortgage lender lends you the full amount that the property costs. (So if the house costs £100,000 you borrow £100,000).

 

Usually you'd only get a loan to value mortgage between 75% to 95% (eg if the house cost £100,000 a 75% mortgage means you would borrow £75,000).

 

The problems with getting a 100% mortgage are:

  • It will probably cost you a lot more than necessary - you'll be charged a higher interest rate.

  • You may get tied in - which you want to avoid.

  • You'll be relying on property prices continuing to rise. If they fall you'll be in a right old pickle called negative equity.

  • You'll very likely have to pay a mortgage indemnity guarantee policy. This is only good for the lender and doesn't help you.

However if, like many, you don't have enough spare cash and a 100% mortgage is your only realistic option, the good news is that there are some reasonable deals out there.

 

You've got to shop around to find one. This may be a drag but shouldn't be as difficult if you use an expert see ways to find your mortgage.

 

 

 

STANDARD VARIABLE INTEREST RATE MORTGAGES


Here's how these type of mortgages work.

 

The Bank of England sets a base rate. This is the basic interest rate - which is that bit on the news you've probably ignored for years when they get all excited about interest rates going up or down.

 

The mortgage lender's interest rate is set higher than the base rate - say 1 or 2% above it.

 

So if the base rate is 5% and your mortgage lender is charging you 2% above the base rate, you'll be paying 7% interest.

 

Now the Bank of England can change the base rate at any time. So if they raise it by 1.5% overnight the base rate is now 6.5%.

 

So your mortgage is now 8.5% i.e. still 2% above the base rate.

 

Your mortgage is variable because it goes up and down ie as the base rate varies

 

Each of the mortgage lenders have their own variable interest rate. They vary a great deal offering as much difference as 1%. It may not sound much but on a £100,000 loan that's £1000 per year.

 

Good Points: You might get lucky and see the interest rate drop.

 

Bad points: Errm. You might be unlucky and see the interest rate rise.

 

 

 


 

 

 

 

MONEY FINDER

 

 

 

ABBEY NATIONAL

ALLIANCE & LEICESTER

ALLIED IRISH

ALTERNATIVE INVESTMENTS

ANGELS

ANZ BANK AUSTRALIA

BANK OF AMERICA

BANK OF TOKYO JAPAN

BANK ONE USA

BANKS

BARCLAYS - UK

BAYERISCHE LANDESBANK - Germany

BNP PARIBAS GROUP - France

BILLIONAIRES

BRISTOL & WEST

BRITISH NATIONAL BUSINESS ANGELS

BRITISH VENTURE CAPITAL FIRMS

BUILDING SOCIETIES A - Z

BUSINESS PLAN

CAHOOT

CANADIAN IMPERIAL BANK - Canada

CHASE MANHATTAN - US

CITIBANK - US

COMEICA BANK - US

CREDIT CARDS

CREDIT LYONNIAS - France

DEUTSCHE BANK - Germany

DOW JONES

DRAGONS DEN

DRESDNER BANK - Germany

ECONOMICS

ELECTRONIC MONEY TRANSFERS

ENTREPRENEUR

EQUITY HOUSES

FINANCIER

FIRST DIRECT

FLEET - US 

FORBES 100 RICHEST

FORBES 500

FOREX INVESTMENTS

FORTUNE 500

FOUNDATIONS - GATES

FTSE

FUJI BANK - JAPAN

HALIFAX

HOLDING COMPANY

HONG KONG STOCK EXCHANGE

HSBC

HSBC BANK USA - UK

HSBC - HK

IMPERIAL BANK - US

INSURANCE

INVESTORS INDEX

 

 

IMF

J PIERPOINT MORGAN

JOHANNESBURG STOCK EXCHANGE

LA SALLE BANK - US

LOANS

LONDON STOCK EXCHANGE - MARKET

LLOYDS

MADRID STOCK EXCHANGE

MARKET CAPITALISATION

MAYBANK - Malaysia

MONEY

MONEY LAUNDERING

MONEY SORTER

MORTGAGES

NASDAQ

NATIONAL AUSTRALIA BANK GROUP

NATIONAL LOTTERY

NATIONAL WESTMINSTER BANK

NATIONAL BUSINESS ANGEL NETWORK

NATIONAL CITY BANK - US

NEW YORK STOCK EXCHANGE

OFFSHORE BANKING

PENSIONS

PLCs

RBS ROYAL BANK OF SCOTLAND

SANWA BANK - Japan

SAVINGS

SHAREHOLDERS

SHARES, STOCKS, DIVIDENDS

SHELL COMPANIES

SIAM COMMERCIAL BANK - Thailand

SOCIETE GENERALE - France

SOUTHERN BANK BERHAD - Malyasia

STANDARD CHARTERED BANK - UK

STATE STREET BANK - US

STOCKS AND SHARES

SUMITOMO MITSUI BANK - Japan

SWISS BANK ACCOUNTS

TAX HAVENS

THAI FARMERS BANK - Thailand

THE AMERICAN DOLLAR

THE POUND STERLING

TORONTO DOMINION BANK - Canada

TRUSTS

UBS AG - Switzerland

UNION BANK OF CALIFORNIA

VENTURE CAPITAL

WALL STREET

WELLS FARGO - US

WEST DEUTSCHE LANDESBANK - Germany

WORLD BANK

WOOLWICH

 

 

 

 

 

 

MORE DETAILED LOOK AT RECENT BUILDING SOCIETY HISTORY

 

Building societies are owned by their members for the benefit of both saving and borrowing members. But building societies have been merging, have been taken over by banks and have turned themselves into banks. This study looks at what is taking place, and why.

 

It is one of a series of eight studies of co-operatives and mutual societies which were undertaken to determine causes of failure and reasons for success, to see how these enterprises were controlled and managed, to learn from the mistakes of others. What is taking place is fascinating and often unexpected (See 'Relevant Current and Associated Works').

 

The main report 'Co-operatives: Causes of Failure, Guidelines for Success' is based on these studies. Its conclusions and recommendations are entirely relevant and cover fundamental and practical problems of co-ops and mutual societies, of members, of direction, management and control (See 'Relevant Current and Associated Works').



BUILDING SOCIETIES

 

The first building societies were formed about 200 years ago when some people got together to co-operate with each other in building their own houses. Members regularly contributed to the society and built the houses together. Each completed house was allocated by lottery to a member. They carried on until each member had his own house. The society, the house-building co-operative, was then dissolved.

 

After a while building societies began to borrow money from investors to build houses more quickly and this was the start of permanent building societies, now simply called building societies.

 

Then about 100 years ago, most UK building societies stopped building houses and concentrated on providing capital for building houses, on providing mortgages.

 

Building societies are mutual societies, are owned by their members for the benefit of members, that is of both savers and borrowers alike.

 

Many people are tied for life to paying rent to, and so working for, profit-seeking landlords who are able to increase rents largely at will and who are thus absorbing any gains in income.

 

The building society movement, however, has enabled a massive number of people in the UK to own their own homes. It has been giving people something to work for and a sense of achievement from living in a house of one's own, enabling them also to save and provide for retirement and old age.

 

In the UK at this time are 80 building societies with 5,500 branches, having between them something like 30 million accounts (savers and borrowers) and assets of GBP 262 billion. Their net profits of GBP 1 billion amount to a net profit per account of GBP 35.

 

UK legislation regulates what building societies may, or may not, do. When banks started to offer mortgages, building societies were enabled by legislation to compete with banks by providing personal loans and other financial services such as current accounts. But building societies have been merging, been taken over by banks and have turned themselves into banks. Their number is reducing and branches are being closed down.

 

So here in this study we take a close look at what is happening by means of case-studies and draw some relevant conclusions.



CONVERSIONS, MERGERS AND TAKEOVERS


ABBEY NATIONAL CONVERTING TO PLC

 

Abbey National was UK's second largest building society in 1985. The society's chief executive then said that it was considering converting from a mutual building society to a shareholder owned public limited company. Its assets were more than GBP 18 billion, its reserves GBP 750 million.

 

Abbey National at that point belonged to its savers and borrowers, that is to its members, and such a mutual society aims to serve its members. Its surplus (profit) benefits its members. On the other hand a public limited company (PLC or plc) belongs to shareholders and aims to maximise profits for the benefit of its shareholders.

 

What is not clear is how converting could benefit either borrowers or savers, as both would be worse off all the time profits are paid out to shareholders instead of benefiting members. However, Abbey National gave members some free shares in the new company and members benefited to that extent at the time of the conversion.

 

Abbey National converted to a shareholder owned company in 1989 and by 1996 much had changed. Service to the community had been reduced to the extent that over a thousand of Abbey National's community branches had been closed. As regards pay of directors, the chief executive had apparently bought shares in the company which were then worth GBP 1.8 million and this would not have been possible had Abbey National remained a mutual building society. Directors' pay as a proportion of overheads had been increasing rapidly.

 


LLOYDS TAKEOVER OF CHELTENHAM AND GLOUCESTER BUILDING SOCIETY (C&G)

 

The Cheltenham and Gloucester Building Society decided in 1995 to be taken over by a bank, by Lloyds Bank.

 

Margaret Hughes in the Guardian quoted the chief executive of the C&G as saying:

 

"This is a C&G deal not a LLoyds Bank deal. We chose Lloyds, not the other way around."

 

Teresa Hunter and Ian Wylie, reporting a few days later on advantages and disadvantages of Lloyds bid, said

 

Some society executives will gain handsomely from the deal. The chief executive stands to benefit from share options worth four times his basic salary. Including additional benefits, his salary stood at GBP 354,462 last year. He and his immediate family will also get GBP 37,600 in cash bonuses. The chairman and his immediate family will receive cash bonuses of GBP 55,000, and eight other executives will receive share options.

 

Customers cease to be members of a building society and become customers of a bank, thereby losing the right to elect board members, and have a say in the management of the institution by attending annual general meetings and voting on key issues.

 

When Lloyds Bank proposed its GBP 1.8 billion takeover of the Cheltenham and Gloucester Building Society, a court ruled that voting investors of the society had to have accounts open for at least two years to qualify for the resulting cash bonus. In other words, cash bonuses can only be given to investors of two years' standing.

 

This ruling deprived some categories of C&G customers of bonuses they had been promised and this made it more difficult for the society's directors to get the approval of the society's members for the takeover. But the members voted decisively for the LLoyds Bank takeover.

 

The society expected the average payment to be about GBP 2,000, with payments ranging from GBP 500 to GBP 13,500.


At the time the takeover was being decided,

 

The Building Society Commission, which regulates the movement, and the Treasury had grave misgivings about the Cheltenham and Gloucester deal. The authorities viewed the cash element of the deal as a bribe.

 

And

 

In effect Lloyds Bank is being allowed to raid the cash of the C&G to bribe its members - both depositors and mortgage holders - into acceptance ... by means of a bribe which drives a coach and horses through the principles of mutuality.


Over 150 years building society savers and borrowers have built up reserves of GBP 14 billion.

 

Abbey National's conversion and C&G's takeover deal showed that building societies' reserves could be used and dissipated in such ways. This has led:

 

 

"... to large investment in societies ... which have been cited as takeover targets."

 

and reports that:

 

each time a league table or comment appears, identifying societies ripe for ending mutuality or being taken over, large speculative flows of money follow. De-stabilising hot funds, searching always for the largest bonus. 


However, the reserves of the building societies movement were not built for the benefit of speculators, but for the purpose of better serving members and community.


HALIFAX AND LEEDS BUILDING SOCIETIES MERGING AND CONVERTING TO PLC

 

In March 1995 the Halifax Building Society was cleared by a High Court judgment to merge with the Leeds Permanent Building Society two years later and to convert to a public company, to a bank. The two building societies have 10 million members, and the capital to be distributed by way of shares to members amounts to GBP 9 billion.

 

If members vote for merging and converting to a PLC, that is to a bank whose shares are quoted on the stock exchange, then each member can expect to get free shares worth on average about GBP 900.

 

The court judgment enabled the societies to give free shares to all their members including borrowers and investors of less than two years standing. Cash bonuses can only be given to investors of two years' standing. Shares can be given to all members - provided that no shares are being offered to the public at the same time. 

 

A Leading Article in The Guardian recorded:

 

One City analyst (UBS Global Research) argues that the rationale for conversion of the business is less strong than the rationale for management themselves "for whom conversion is likely to be financially rewarding". 

 

By October 1996 the position was that nine million savers and borrowers would be receiving about GBP 800 worth of free shares in June 1997 when the Halifax converts. This is expected to be the biggest ever stock market floatation, at GBP 10 billion.

 

A key point is that from the March 1995 judgment onwards shares can also be given to members of less than two years' standing, and that in this way speculators also became entitled to receive a share of the societies' accumulated reserves.

 

 

ABBEY NATIONAL'S FORCED TAKEOVER OF NATIONAL AND PROVINCIAL BUILDING SOCIETY

 

N&P closed its doors to new accounts on Friday, 28 April 1995. Abbey National wanted to take over N&P, the directors of the two organisations were going to meet on Monday to discuss the matter. Publicity about Abbey National's offer had 'prompted a flood of deposits from investors hoping to cash in on a takeover'. Up to 15,000 people opened an account with N&P in the four days before N&P closed its doors to new qualifying accounts.

 

After Abbey National raised its offer to GBP 1.35 billion, the N&P board of directors announced on 10th July that they had agreed to be taken over and Abbey National announced that it had succeeded. Between 1 and 1.5 million savers and borrowers with the N&P Building Society could expect to receive free Abbey National shares worth between GBP 500 and GBP 600. Two-year savers could expect to receive more in accordance with their account balances, on average about GBP 1,200.

 

After the takeover Abbey National expects to be the second largest mortgage lender in the UK, with 15 million customers and 880 branches. But N&P's 200 community branches are to be closed.

 

It was reported that:

 

"N&P's directors will gain no benefit and will not be able to take part in Abbey National's share option scheme until two years after the merger. If members approve the deal then N&P's chief executive will join the board (presumably of Abbey National)."

 

We have seen here the extent to which speculative money flows to building societies likely to convert or distribute their reserves in some way.

 

Apparently Abbey National used N&P's reserves to persuade N&P's owners, namely its members, to hand over the society in return for share or cash payments drawn in effect mainly or completely from their own reserves, from their own capital.

 

The directors were left with little choice and seemingly gained little.

 

As a result of this forced takeover, directors of other building societies must now be considering their own position. They can convert to a PLC and retain control with the likelihood of enhanced rewards for themselves. Or they can remain a mutual society by distributing ownership of reserves among their members in a way which benefits their society. Or they could wait for a commercial company to go over their heads to the members and take the society over without personal gain to its directors.


 

OTHER CONVERSIONS, FLOTATIONS, MERGERS AND TAKEOVERS

 

In October 1996 the Alliance and Leicester Building Society said that its 2.4 million members would each receive 250 shares worth about GBP 1,000 when it converts to a PLC in 1997.

 

In 1997, in addition to the building societies mentioned earlier on, both the Woolwich and also the Northern Rock both plan to become banks. And the Bristol and West is to be taken over by the Bank of Ireland. Also two mutual societies, namely the Colonial Mutual and the Norwich Union, are to convert from mutual ownership and self-aid to profit-maximising on behalf of self-interested owners.

 

The combined total assets of all building societies which have been and are converting and which have been or are being taken over, in 1992/93 amounted to GBP 166.4 billion, about 67 per cent of the total for the whole UK building society movement. Changing from serving the public to shareholder-gain profit-maximising.


Overall, giving away many GBP billions to building society members to encourage them to give away mutuality.

 


FROM 'HOUSING FINANCE' TOWARDS 'FINANCIAL SERVICES'

 

Banks began to compete with building societies for home loans and 1981/82 gained a considerable share of the mortgage market for new homes. But profit-maximising banks would not be able to compete profitably with mutual-help nonprofit-making building societies in providing mortgages.

 

At that time the Council of the Building Societies Association was made up of Chief Executives of something like 30 building societies, including the ten largest. And in 1983 a working party of the Building Societies Association recommended proposals for changing the role of building societies.

 

They were seeking wide-ranging powers to extend their operations into areas such as banking, insurance and hire-purchase. Implementing many of their proposals would overturn 200 years of tradition.

 

Where such activities would involve a degree of risk they proposed to operate only through subsidiary companies. Presumably to protect parent societies from having to pay the full debts of their subsidiaries if the subsidiaries became insolvent.

 

The activities of building societies are restricted by legislation. When banks entered the mortgage market, building societies pressed for changes which enabled building societies to compete with banks for services offered so far by banks alone.

 

Consumers benefited considerably from this. It was building societies which introduced free banking and interest-paying current accounts and forced at least some banks to reduce charges and treat their customers with more consideration. Most building societies now compete to some considerable extent with banks and insurance companies, providing loans and insurance policies.

 

 

THE ROLE OF DIRECTORS

 

We saw above <1> that in 1983 a working group of the Building Societies Association, made up of leading building society chiefs, put forward proposals for changing the role of building societies. Proposals for moving into areas such as banking, insurance and hire-purchase.

 

Their report also emphasised that member-democracy should not be exercised at the expense of a society's efficiency.

 

A vacancy on a building society's board of directors is filled by the directors themselves appointing the new director. Directors, the report concedes, are likely to choose from people they know, about whom they can form a judgment.

 

'Efficiency' may refer to profit-taking (profitability) instead of service to members. And democratic control of the building society is apparently resented and in effect bypassed when it comes to appointing directors.

 

Why should nominees of an existing board of directors be automatically co-opted instead of standing for election? Members are in effect asked later to approve an appointment already made by the directors.

 

I have seen mentioned that under UK building society legislation directors are not required to act on a majority vote at a general meeting, they are required merely to 'take note'.

 

This is how Sir Dennis Landau, former chief executive of the Co-operative Wholesale Society, saw such matters in 1994:

 

`Once you get down to how building societies appoint their directors and how they are controlled, many are mutual in name only. They are really oligarchies run by managers for the managers.'

And Ian Wylie, writing in the Guardian, said this:

 

"... few societies today can claim to be organisations actually run by their members. The goals of the larger societies are now barely distinguishable from those of the banks. Dilution of ownership across vast numbers of members has left societies open to charges of unaccountability,"


The working group's report also recommended that societies should be permitted to turn themselves into companies controlled by the Companies Acts.

 

In other words, should be permitted to convert into profit-maximising companies controlled by the biggest shareholders.

 

Ian Wylie's review included:

 

To Rob Thomas, analyst at UBS, conversion defies logic. He says: "With mutuality you don't have the pressure of paying dividends - or stock market analysts looking over your shoulder every day. Only management stands to gain from flotation, and only the naive would believe accountability is any greater within a PLC."


Senior executives of building societies have at times gained some of the biggest pay rises in the UK's financial services industry. In one year, while inflation was in single figures, the highest paid executives from the ten biggest building societies gained salary increases of, on average, 55 per cent. And salaries for highest paid executives in banks were probably between 2 and 4 times those paid in building societies.


RESERVES AND OWNERSHIP

 

While banks concentrate on maximising rewards for directors and profits for shareholders, a building society provides a service to its members. Building societies, however, have retained surplus funds and over the years built up massive reserves. Over 150 years, for example, UK building societies built up GBP 14.3 billion of reserves. There is much concern that this is being dissipated by conversions and takeovers.

 

Reserves increased to GBP 16 billion during 1994/95 and the Building Societies Commission in its annual report re-emphasised

 

the need for societies to explore ways of distributing excess capital to members. While some societies have launched loyalty bonus schemes, others are considering paying a regular dividend, by issuing some form of share.

And Maria Scott, writing in the Observer, said

 

Building societies generally pay better returns than banks. But is the difference enough? Building society directors have paid lip-service to the ideals of mutuality for years. Even now, under siege from aggressive outsiders, none has come up with a way to release their substantial accumulated profits to members that would mark them out from High Street banks. Instead, they cut savings rates at the first opportunity.

 

A public company would, typically, pay half its post-tax profits to shareholders in dividends. If societies chose this measure, customers could expect somewhere between GBP 15 and 20 per account each year. However, building societies are not expected to follow this model and most argue that any annual dividend-style distribution would fail to impress customers.

 

Instead, they are working on schemes such as that announced by Bradford and Bingley last week that will pay sums running into hundreds of pounds but only if the investor keeps the account open for a few years.


 

CONCLUSIONS

 

What has been and is taking place seems to be as follows:


 

BUILDING SOCIETIES AND BANKS

 

Banks concentrate on maximising rewards for directors and profits for shareholders.

 

A building society is a mutual society owned by its members. Both depositors (lenders) and borrowers are members. The mutual interest between lenders and borrowers is that profits are shared out between them. Compared with banks, the lender gets more and the borrower pays less.

 

Building societies have been retaining some of their surpluses and over 150 years have built up massive reserves.

 

A mutual society is run for the benefit of its members and its reserves were accumulated for the purpose of better serving its members and the community.

 

And so building societies became big, influential and powerful.


 

MUTUALITY AND DEMOCRATIC CONTROL: ROLE OF DIRECTORS

 

Members of a building society have the right to attend annual general meetings to vote on key issues and elect board members.

 

However, a vacancy on a building society's board of directors is filled by the directors themselves co-opting a new director. Directors are likely to choose from people they know. Members are in effect asked to approve an appointment already made by the directors.

 

The number of members is very large indeed and control and accountability weakened to that extent. But compared with a bank's shareholders, a building society's members are much closer to what is taking place, both as borrowers and as lenders. So building society directors are that much more closely observed by the owners, by the members.

 

And it seems that under UK building society legislation directors are not required to act on a majority vote at a general meeting, they are required merely to 'take note'.


We also saw expressed the feelings of senior executives that 'member-democracy should not be exercised at the expense of a society's efficiency'. Which, translating into basic English, presumably means they feel that democratic processes should not interfere with decision-taking by senior executives.

 

So it would seem that democratic control of building societies is weak, that few societies can claim to be run by their members, that many are mutual in name only, that directors have almost complete control over policy setting and over the carrying out of policy.

 


CONVERSION TO PLC: PAY OF DIRECTORS

 

What stands out is that pay at the top for chief executives and directors depends on performance and it would seem that performance is assessed by criteria such as deposits, turnover, and surplus (profit) generated.

 

But for some time now pay of directors has been what the market will bear, what shareholders will not object to in the light of dividends they receive and the increase in the value of the shares they own. And 'pay' (remuneration, emoluments, call it what you will) includes status, power, patronage, influence.

 

So directors of banks and of building societies are motivated to expand the enterprise they control, by diversifying into other related areas, by taking over other enterprises, by becoming more efficient. And directors of building societies are paid much less than directors of banks.

 

Banks began to compete with building societies for home loans and 1981/82 gained a considerable share of the mortgage market for new homes. But profit maximising banks would not be able to compete profitably with mutual-help nonprofit-making building societies in providing mortgages. And the banks must have realised this quite quickly.

 

The activities of building societies are restricted by legislation. Building societies pressed for changes which enabled building societies to compete with banks for services offered so far by banks alone. Now they provide personal loans and other financial services such as current accounts. Most societies also provide personal loans and insurance services. Successfully providing a friendly helpful service and often better terms than are offered by banks.

 

And we saw senior executives of building societies gain some of the biggest pay rises in the UK's financial services industry, presumably as a result of this expansion of activities, of performance.

 

But concentrating on increasing performance, on expanding activities, has been accompanied by a loss of mutuality. The goals of the larger societies are now barely distinguishable from those of the banks.

 

And then Abbey National converts to a company.

 

Mutual aid and concern cease to be objectives. Members cease to be owners so they lose the right to appoint directors, to vote at general meetings. Members cease to be members and become customers, become a source of profit for the bank's new owners. Depositors may get less, borrowing costs more.

 

However, Abbey National gave members some free shares in the new company and members benefited to that extent at the time of the conversion. By 1996 service to the community had been reduced to the extent that over a thousand of Abbey National's community branches had been closed. Directors' pay as a proportion of overheads had been increasing rapidly.

 

Next Lloyds Bank takes over the Cheltenham and Gloucester Building Society. This is a C&G deal not a LLoyds Bank deal. C&G chose Lloyds, not the other way around.

 

The society expected the average payment to members to be about GBP 2,000, with payments ranging from GBP 500 to GBP 13,500.

 

In effect Lloyds Bank was being allowed to use C&G's reserves to persuade C&G's members, both depositors and borrowers, into accepting the deal being offered, into voting their society out of existence.

 

And when Lloyds took over the Cheltenham and Gloucester Building Society, C&G's senior executives gained a great deal financially.

 

Next came the Abbey National's forced takeover offer to National and Provincial Building Society (N&P).

 

Between 1 and 1.5 million savers and borrowers with the N&P Building Society could expect to receive free Abbey National shares worth between GBP 500 and GBP 600, while two-year savers could expect to receive on average about GBP 1,200.

 

Apparently Abbey National used N&P's reserves to persuade N&P's owners, namely its members, to hand over the society in return for share or cash payments drawn in effect mainly or completely from their own reserves, from their own capital.

 

After the takeover Abbey National expects to be the second largest mortgage lender in the UK, with 15 million customers and 880 branches.

 

But N&P's 200 community branches are to be closed.

 

And N&P's directors were left with little choice and seemingly gained little.

 

 

AND NOW

 

As a result of Abbey National's forced takeover of National and Provincial Building Society, directors of other building societies must have been considering whether

 

  1. to distribute ownership of reserves among their members in a way which benefits their society and maintains mutuality, or whether

  2. to convert to a PLC and retain control with the likelihood of enhanced rewards for themselves, or whether

  3. to wait for a commercial company to go over their heads to the members and take the society over without personal gains to its directors.


And now we can see more aspects of what is happening.

 

Outstanding is that Bradford and Bingley Building Society has put into effect a scheme which will pay sums running into hundreds of pounds to investors but only if the investor keeps the account open for a few years.

 

 

LINKS and REFERENCE

 

Here is some good information on Bridging loans in the UK

 

These are short term / quick loans that are typically used for when you want to buy a house or other property but have not sold yours yet

 

 

 

 

Laser weapons on boats are now a reality against pirates

SolarNavigator is to be equipped with the SNAV intelligent autonomous navigation system. This system is thought to be the only system under development that is COLREGs compliant.

 

 

  

This website is copyright © 1991- 2013 Electrick Publications. All rights reserved. The bird logo and names Solar Navigator and Blueplanet Ecostar are trademarks ™.  The Blueplanet vehicle configuration is registered ®.  All other trademarks hereby acknowledged and please note that this project should not be confused with the Australian: 'World Solar Challenge'™which is a superb road vehicle endurance race from Darwin to Adelaide.  Max Energy Limited is an educational charity working hard to promote world peace.

 

 AUTOMOTIVE  |  BLUEPLANET BE3  |  ELECTRIC CARS  |  ELECTRIC CYCLES  |  SOLAR CARS  SOLARNAVIGATOR